Determinants of Capital Structure of the Firms Listed on the Nairobi Securities Exchange: a Case Study of the Automobile Firms
Abstract
Financial planning is an integral part of financial management which deals with the
management of a firm’s funds with a view to maximizing profit and the wealth of
shareholders. Capital structure is a vital financial planning principal which details on
how the firms leverage is structured. Selection of an optimal capital structure is always
a critical issue for every firm. The reason for this is of course, financial risk and tax
advantage which are directly influenced by a company’s choice of capital structure. The
aim of this research was to determine what influences the choice of capital structure of
automobile companies listed on the Nairobi Securities Exchange. The factors which
were tested are; growth of the firm, taxation, liquidity and dividend policy. The
research study design was a census descriptive research. The research used secondary
data which was analysed using SPSS. The population of interest in this study comprised
of the more than 60 currently listed companies on the Nairobi Securities Exchange. The
study used a census sampling technique. The sample for this study included all the
automobile firms that were listed throughout the years 2007-2016. This study found out
that growth of the firm, taxation, liquidity, and dividend policy are determinants of the
capital structure of Automobile companies in Kenya. The most influential variable is
the dividend policy followed by liquidity, then taxation and firm growth. Firm growth
has the least impact on leverage of the automobile firms in Kenya. The study
recommended that a well-adjusted combination of debt and equity be established so as
to ensure that the firm maintains capital adequacy. Firms can thus be able to meet their
financial compulsions and grasp investments that can promise attractive returns.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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