Effect Of Debt Financing On Financial Performance Of Public Universities In Kenya

Abstract

The effect of debt financing on financial performance is a significant determinant of the financial wellbeing of a company. Public universities have a tendency to suffer more from fluctuations in financial leverage because they have a low equity to total asset base ratio. During the recent times, many public institutions of higher learning have commenced huge expansion programs with limited funding alternatives, hence they have resulted to debt financing. The capital used to finance a company consists of owners ' funding and creditors ' funding. Combining the two funding sources establishes a company's capital structure. Most contemporary companies, in particular, still have to determine the most appropriate level of debt that gives maximum returns to shareholders. A research aimed at exploring the impact of debt financing on the financial performance of public universities calculated as return on assets and return on equity. The outcomes of the study showed that there is a positive relationship between debt financing and financial performance of public universities in Kenya. The research project recommended that public universities need to choose a tradeoff between loans and total owners funds that will increase financial performance.