| dc.description.abstract | Capital structure decisions are among the most important and crucial decisions for any business because of their effect on the value and cost of the company. This study examines the determinants of capital structure of companies listed at the NSE by investigating the extent to which firm characteristics affect the way firms in Kenya raise capital i.e. whether these decisions are According to the assumptions of the capital structure theories.
The study uses secondary data from the published financial statements of the listed companies. This study adopts a multi-regression model for analysis with profitability, growth rate, size, taxation being used as the independent variables and debt to equity ratio as the proxy for capital structure. The sample comprised of non-financial firms listed at the NSE during the period 2003-2009.
Findings of the study find that, firm characteristics such as profitability and tangibility are significantly negatively related to leverage as also liquidity growth and taxation, but are insignificant. While firm risk was seen to have a significant positive relationship but an insignificant one for dividend policy and non-debt tax shield. the explanatory powers of the regression equation was about 17% and significant which indicate that the model construction is quite indicative.
The paper contributes to the literature in that it shows that the determinants of capital structure conform to those reported by other related studies in emerging markets as well as developed markets. The financing decisions of listed firms seem to support both the pecking order theory and static trade-off theory | en_US |
