Effect of Capital Structure on Stock Returns of Commercial and Services Firms Listed at the Nairobi Securities Exchange
View/ Open
Date
2018Author
Sifuna, Arphaxade; W
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
This research sought to investigate the effect of capital structure on stock returns of commercial and service firms listed at the NSE. Annual changes in share prices of the sector firms were used as the measure of stock returns while debt ratio was used as the proxy for capital structure. In addition profitability, liquidity and firm size were used as the control variables. The study covered firms listed under the commercial and service sector of the NSE and a five year period data was analyzed; from 2013 to 2017. The study adopted a descriptive research design using panel data. Secondary data was collected from audited financial statement of the firms under study. Data was then analyzed using multiple linear regression model in SPSS in order to establish whether capital structure has an effect on stock returns of the commercial and services firms listed at the NSE. The analysis produced an adjusted R squared value of 0.256 which mean that 25.6% of changes in stock returns of the commercial and services firms listed at the NSE can be explained by the four predictors; meaning 74.4% of the changes in the stock returns is explained by factors beyond the coverage of this study. This study also discovered a strong correlation between the predictor variables and stock returns of the commercial and services firms listed at the NSE (R=0.566). The analysis of variance showed that the model was fit to explain the relationship between the studied variables because the p value was significant at the 5% level (p = 0.002). The analysis further revealed that debt ratio and profitability produced positive statistically significant results while liquidity and firm size produced negative statistically insignificant results. This study recommends that firms should utilize debt financing in order to increase stock returns consequently maximizing shareholders’ wealth but also firms’ management should be cautious because borrowing is associated with bankruptcy costs. Increase in debt ratio has been found to increase stock returns of the commercial and services firms listed at the NSE.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
The following license files are associated with this item: