dc.description.abstract | The subject of capital structure is one of the
controversial areas in finance and one that has
attracted a great deal of attention since 1958. Since
then, a lot of theoretical and empirical work have been
done in this area but many issues still remain unresolved
Modigliani and Miller (MM) in arguing the 'case for
irrelevance envisaged no positive role for financial
,management or the possibility of optimal financing
decisions. Later developments, however, showed that
market imperfections may impact differently on individual
firms thus making an individual firm's capital structure
important.
The principal objective of this study was to identify
the factors that the management of quoted companies
in Kenya consider in making their capital structure
decisions. The study also sought to establish whether
some of these factors had more influence than other so
In order to meet these objectives, information was sought
through the use of questionnaires from the financial
managers of publicly quoted companies and practising
accountants who offer financial advisory services to
management. The capital structures of the public
companies were also analyzed with a view to ascertaining
whether some of these factors might be reflected in the
existing capital structures.
The study found that many factors may influence the
capital structure of a firm. Among the most important
factors were the stability of future cashflows, the level
of interest rates in the economy the asset structure of
a firm, the need for outside capitall lenders' attitudes
towards a firm and the attitudes of management towards
risk. Analysis of the capital structures revealed that
a firm's use of debt and its age, size, and amount of
fixed assets were positively correlated but the correlation
coefficient was rather low.
It is appreciated that much remains to be done
towards developing models that are suitable for empirical
testing. Nevertheless, the study suggests among other
things that further research is needed to determine the
place of the theories of capital structure in Kenya
through empirical tests | en |