Determinants Of Capital Structure In Deposit-Taking Savings And Credit Cooperative Societies In Nairobi County

Abstract

Capital structure is a fundamental aspect of corporate finance that examines on the approaches a firm chooses its financing decisions to determine proportion of equity and debt. In making these decisions, the firm should always gauge its operating environment, both external and internal. The study aimed at establishing the determinants of capital structure in Deposit-Taking Savings and Credit Cooperative Societies in Nairobi County. The study was premised on the following theories; pecking order theory, trade-off theory and agency theory. The study utilized a descriptive research design. The study focused on all 39 deposits taking Saccos in Nairobi County. Historical data was acquired from the financial books of respective Saccos. Information on firm size, profitability, and leverage and asset tangibility was acquired from the respective Sacco financial reports. The study collected data for the last five years 2014-2018. Diagnostic tests conducted included multi-collinearity, heteroscedasticity and normality test. The quantitative data acquired was analyzed using (SPSS) version 20. Descriptive statistics was utilized to explain quantitatively the significant attributes of the variables using mean, frequency and standard deviation. There exists strong positive significant relationship between profitability ad capital structures; DTSs, operating Nairobi County utilized more debt in capital structure in order to reap maximum profit. The study concludes that leverage has significant effect on capital structure of deposit-taking savings and credit cooperative societies in Nairobi County, that nearly all the Sacco’s that used financial leverage mainly to increase the their earnings per share and to grow its return-on-equity. The study concluded that firm size is a significant predictor on capital structure of deposit-taking savings and credit cooperative societies in Nairobi County. The study supports that deposit-taking savings and credit cooperative societies should ensure that more members are enlisted and existing members should be encouraged to enhance contributions so that the equity levels of the Sacco can increase and more capital can be raised. Therefore, deposit-taking savings and credit cooperative societies should focus more on increasing their internal finances so that they can make more use of them rather than relying upon external finances. Moreover, the deposit-taking savings and credit cooperative societies should endeavor to obtain loans from institutions that offer low interest rates when need be to remove the burden of high interest rates.