The Effect Of Debt Financing On Profitability Of Listed Non Financial Firms In Kenya

Abstract

The investigation aimed at establishing the the bearing of debt financing on profitability of registered non-financial establishments in Kenya. Quantitative research methodology was adopted. The target population that was used in the investigation was all the registered establishments at the NSE. The NSE has 39 listed non-financial establishments. The investigation used secondary sources to collect data. The investigation used the financial statement that covers a period of 7 years from the years 2011 to 2018. The method of data analysis employed was descriptive statistics and inferential statistics. The investigation findings show that R square was 0.426. This meant that 42.6% of profitability is determined by the predictor variables: short-term debt, long-term debt, total assets and capital adequacy. This points out that 57.4% of the variation in profitability of non-financial listed establishments was attributed to the measurements of error and other factors not encompassed in the investigation. The significance of the analytical model was measured by the F test which was found to be 0.000 which is less than 0.05. This points out that the analytical model is substantial and fit to predict the dependent variable. The investigation concludes that the profitability of non-listed financial establishments is affected by the predictor variables that were captured by the investigation. This is evidenced by the fact that the log of STD had a positive beta coefficient of and therefore had a positive bearing on the profitability. In addition a unit surge in the log of the STD resulted to a surge in the profitability of listed non-financial establishments. This was also evidenced by a unit surge in the log of LTD, the log of total assets and capital adequacy whose unit surge led to an overall surge in the profitability of the establishment. Therefore, the findings of the investigation reveals that there is positive correlation between ROA and log of STD and the log of log of total assets thus when they surged there was an overall surge in the ROA. The investigation therefore recommends that non-listed financial establishments should work towards increasing the return on assets in a bid to surge their capacity to distribute STDs without causing financial losses to the company. The surge in the rate of STD uptake would bring about the surge of the profitability of the establishment thus beneficial to the company. The STD correlated negatively with the log of LTD thus non-listed financial companies are recommended to maximize on STD financing which has a lower risk as compared to LTD thus less negative effect on the profitability of the company. The investigation recommends the formation of favorable policies by non-listed financial establishments that would aim at regulating the log of LTD since from the findings, the log of LTD negatively correlated with ROA, log of STD, capital adequacy and log of total assets and the decrease in the log of STD, capital adequacy, log of total assets and ROA resulted into a decrease in the log of the LTD. Regulating the log of LTD would therefore help to reduce the risks that the company handles and as a result the non-listed financial establishments would be more profitable.