Effect Of Financial Leverage On Profitability Of Real Estate Firms In Nairobi County
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Date
2019Author
Christine Ajiambo Wandera
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
Globally, a critical factor in real estate development and investment is funding and it is a fact that
development in real estate sector requires huge outlay of financial resources hence access to
cheap and adequate funding is necessary. The study was underpinned by three theories including
resource dependency theory, real estate simulation theory and MM theory. Descriptive research
design was adopted to examine the association between the exogenous and endogenous
variables. The study targeted 80 Real Estate companies licensed by Nairobi County Government.
The sample size was 24 real estate firms in Nairobi county Kenya selected using simple random
sampling. The secondary data was extracted from annual financial reports of the selected Real
Estate Firms in Nairobi Kenya for the period from 2014 to 2018 a period of five years. The study
tested assumptions of classical least squares regression including Normality, multicolliniarity,
serial correlation and heteroscedasticity. The study established that there was an inverse and
major causal effect link existing between use of mortgages and profitability (β1= -.1963, p-value
= 0.000< α = 0.05). In addition, the study established an inverse causal effect association existing
between share capital on profitability (β2= -.001907, p-value = 0.519 > α = 0.05). The study also
established a direct and significant causal link existing between retained earning and profitability
(β3= 0.007572, p-value = 0.000 < α = 0.05). In addition, there was a direct major causal effect
link subsisting between firms size and profitability (β4= 0.1843, p-value = 0.000 < α = 0.05).
Finally, the study revealed a direct causal effect association between liquidity and profitability
(β5= -0.01673, p-value = 0.155 > α = 0.05). The study thus concludes that the effect of financial
leverage on profitability of real estate firms was significant. Specifically, the study concluded
that effect of mortgages on profitability was negative and major. There was inverse association
between share capital and profitability. The study also concluded that there was direct and
significant causal link existing between retained earning and profitability. In addition, the study
concluded that there was a direct major causal effect link subsisting among firm’s size and
profitability. Finally, the study concluded that there was a direct causal effect association
between liquidity and profitability. The study recommends that management of real estate should
consider looking for firms that offer favorable rates on mortgages. The research also suggest that
the management of firms should consider up scaling the share capital. The study also suggests
that management of real estate firms to consider retained earnings critically as a source of capital
for financing activities. The study also recommends to management of real estate firms to
consider expanding their asset base. Finally, study suggest that top management of real estate
firms to consider having adequate working capital to support their capital.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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