Determinants of Asset Structure for Companies Listed at Thenairobi Stock Exchange

Abstract

This study was an empirical inquiry into the determinants of asset structure for companies quoted at the Nairobi Stock Exchange. In this case, the term asset structure being used to mean the liquidity pattern displayed by various assets held by a company or the degree of liquidity of a company's total assets. The objectives of the study were, firstly to identify the characteristics of the various asset structures employed by the quoted firms and secondly, to establish the nature of relationship that exits between the determinants of asset structures and the asset structure themselves. The determinants of asset structure under study were variability of cash flows, profitability, debt ratio, growth in the firm and size of the firm These represented the independent variables while asset structure represented the dependent variable. The study was based on secondary data collected from the NSE hand book of the year 2002 and financial statements of all the quoted companies covering the period between January 1998 and December 2002. From this data all the variables relevant to the study were calculated i.e. values representing the determinants of asset structure and those representing the asset-structure throughout the five-year study period. The data collected was analyzed using regression analysis from which a model of five independent variables and one dependent variable was developed The findings of the study confirmed that, variability of cash flows, profitability, debt ratio, growth in the firm and size of the firm are for sure some of the determinants of asset structure and there exits a linear relationship between the asset structure and the determinants of asset structure. It was also found out that firms in the Finance and Investment sector have more liquid asset structures while those in the Agricultural sector have less liquid asset structures. Both Commercial and Services sector and the Industrial and Allied sector have approximately balanced asset structures with respect to current assets and non-current assets.