Effect of Capital Structure on Financial Performance of Commercial Banks in Kenya -A Case Study of Family Bank Kenya Ltd
Abstract
The study was to establish the effect of capital structure on the financial performance
of Family Bank Kenya Ltd for the 11 years period from the year 2010 to 2020. The
study used Returns on Total Assets (ROA) and Returns on Shareholders’ Equity
(ROE) as financial performance variables while Short-term Outstanding Debts to
Total Assets (SOD/TA), Long-term Outstanding Debts to Total Assets (LOD/TA) and
Total Debts to Total Assets (TOD/TA) as the capital structure variables. Secondary
data was collected from the audited financial statements of the bank which were
available from the website. The data was analysed using SPSS version 22 and
Microsoft Excel to determine the suitability of the data for regression analysis and
other parametric tests. The data was found to have met all the requirements for
regression analysis. The study found that capital structure positively and significantly
impacted financial performance of Family Bank Kenya Ltd. The regression analysis
on the effect of capital structure on ROA and ROE indicated that collectively all the
independent variables had a R2 of 75% and 77% respectively. Collectively the capital
structure variables positively and significantly affected the ROA and ROE as per the
ANOVA table with a p-value of 0.017 and 0.013 respectively. The t-statistic revealed
that only one independent variable TOD/TA positively and significantly contributed a
unique variance at a p-value of 0.022 for ROA and p-value of 0.024 for ROE. The
other independent variables SOD/TA and LOD/TA negatively and insignificantly
affected financial performance as represented by ROA and ROE.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Business [1411]
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