| dc.description.abstract | This research project undertook to study the relationship between financial performance and leverage of firms listed continuously at the Nairobi Securities Exchange for 6 years period between 2006 and 2011.
Financial performance data was obtained from the product and Market Development Department Department at the Nairobi Securities Exchange.Nominal interest data was obtained from the library of the National Bureau of Statistics. The financial data for twenty five continuously listed companies was extracted and relevant parameters for research models were computed. The parameters were returned on equity (ROE), equity multiplier, total asset turnover and logistical total assets. Multiplier regression analysis was used to find out the relationship between the independent variable; ROE and the dependent variable and the relationship functions were derived for each company separately. The study found out that financial leverage represented by the equity multiplier affects ROE both positively and negatively with 60% of the companies tested exhibiting a positive relationship and 40% exhibiting negative relationship. All the other independent variables; total asset turnover, logistical total assets and nominal interest rate exhibited a direct relationship with ROE. It was established that the relationship with all variables under review was significant since they recorded P value (sig.)greater than 0.05 in each of the individual response with variables. The study as indicated clearly illustrate that Debt can have both positive and negative effects on the value of the firm so that the optimal Debt structure is determined by balancing the agency and other costs of debt as means of alleviating the underinvestment and overinvestment problem as given indicated in the study. | |
