Effect of Capital Structure on the Value of Investment Firms Listed at the Nairobi Securities Exchange

Abstract

Every firm for it to enhance its activities, it must strive to attain an optimal capital structure that will in turn increase value of their firms. Recognizing the critical role that is played by capital structure decisions, it is imperative that firms adopt best practices with respect to capital structure decisions. The study period was a ten-year period from 2008 to 2017. The study involved use of a descriptive research design using a population of five investment firms listed at NSE. Secondary data obtained from audited financial statements of the listed investment firms was utilized. The data collected was systematically organized in a manner that facilitated analysis using the Statistical Package for Social Sciences (SPSS). Data was analyzed on the basis of mean and F test statistic was computed at 5% significance by regression analysis. To test the strength of the analytical model used for this study, Analysis of Variance (ANOVA) was conducted. From the findings, the F statistic was 2.685 and was found to be significant, equity had a t-value of 0.790 which was insignificant, liquidity had a t-value of 2.198 which was significant, firm size had a t-value of -0.461 which was insignificant and debt had a t-value of 2.072 which was significant. The study concluded that; capital structure had an effect on the value of investment firms listed at the Nairobi Securities Exchange. From the outcome of this research it recommends the adoption of optimal capital structure by firm’s management team. To increase on the value of these firms, the study recommends more equity financing as opposed to debt financing and also proper management of liquidity since they were confirmed to be significant.