Effects of Selected Firms Characteristics on Capital Structure Decisions of Firms Listed at the Nairobi Securities Exchange in Kenya

Abstract

Capital structure choice remain amid crucial significant besides the vital choices intended by a corporate since they have a high consequence on the value and the cost of the company. Therefore this study main focus was to examine the effects of selected firm characteristics on the capital structure decisions of companies registered at the Nairobi Stock exchange markets. In summary wealth organization of a company constitutes composition of debt, equity and a mixture of havens which a company uses to run its day to day activities .In order for the researcher to understand the literature on choice of the capital structure, a number of capital structure theories where considered which include Pecking order theory, trade off theory, agency theory and signaling theory. The study also reviewed the work of other researchers on firm characteristics on firm characteristics and the wealth composition. The research relied on published statements of the listed firms at the NSE and the capital markets authority. The collected data was analyzed with the help of the SPSS software version 23 and presented with the help of frequency distributions, computation of mean and standard deviation. The association between the two research variables, independent and the dependent variable a regression model was used which revealed the following results on the variables relationship. Firm size showed greatest consequence on the company choice of capital structure among the listed firms in the NSE followed by asset structure, profitability and liquidity. Further the regression model also generated adjusted R squared value of 0.692 that is to mean 69.2% of the selection of financing option can be well illustrated by research variables. The findings from the study indicated an affirmative correlation among companies size besides the financing option. The findings also revealed an affirmative association among assets structure against the source of financing. The findings from the research also showed that there is undesirable association among the firms gain and source of financing of the firms listed at the NSE while a negative relationship among liquidity and the principal investment was exhibited in the research findings. This leads to a conclusion that rise in company size resulted to a rise in the investment structure of a firm therefore increase in demand to increase the capital base by seeking more financing. The study also found out that an increase in asset structure resulted in an increase in capital structure while an increase in profitability levels resulted in decrease in capital structure, increase in in liquidity levels led to a decrease in capital structure of the firms listed at the NSE. Therefore the study further recommended that firms should understand the specific characteristics that influence choice of a capital structure in order to opt for the best financing option. The study also further recommends that a similar study should be carried out every three to five years to find out the significant of firm characteristics on choice of capital structure of firms listed at the NSE