Effect of Capital Structure on Financial Performance of Commercial and Services Firms Listed on Nairobi Securities Exchange

Abstract

Capital structure is imperative in defining the soundness of an establishment's balance sheet and should be evaluated before making an investment decision. The study aimed to see how capital structure affects the financial efficiency of commercial and service firms listed on the Nairobi Securities Exchange for a five-year period from 2015 to 2019. Since the study encompassed all 11 commercial and services firms listed in NSE with limited target population, census was used rather than sampling. The study employed a descriptive research approach. To calculate the ROA on the variables, secondary data was taken from financial and annual statements of commercial and service enterprises. SPSS Statistics version 28.0 was used to evaluate the information acquired from various sources. The goal of the study was to see how capitalization affected the performance of Kenyan commercial and service companies listed on the Nairobi Securities Exchange. Commercial and service organizations had a ROA of -.534 from the results when all other parameters were held constant. According to the findings, capital structure had a substantial impact on the financial performance of Kenyan commercial and service firms. The study concluded that capital structure affects financial performance of firms and study recommended that firms should use debt optimally to finance their capital in a bid to improve their financial performance whose goal is to reduce their cost of capital while increasing their profits