The Effect Of Debt Financing On Firm Profitabilty Of Commercial Banks In Kenya
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Date
2013-10Author
Muchugia, Linus M.
Type
ThesisLanguage
enMetadata
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The effect of debt financing on firm profitability is of considerable importance to all
firms. Banks are especially sensitive to changes in financial leverage due to their low
level of equity capital to total assets. Currently most of the commercial banks have
engaged in the expansion program which require huge amount of capital, which in most
cases bank are turning to debt financing this made me to do research of effect of debt
financing on firm profitability of commercial banks here in Kenya. Therefore, the
objective of this study was to establish the effect of debt financing on firm profitability, a
case commercial bank in Kenya.
The study was descriptive in nature and used a census method of all the 43 commercial
banks. The study period covered a 5-year period (2008 – 2012). The study used a Pearson
Correlation Analyses to examine the relationship between independent variables banks
profitability and the dependent variables banks capital. Multiple linear regresion analsysis
was also used to achieve the same.
The findings show positive relationship between short term debt (SDA) and profitability
since short-term debt tends to be less expensive and increasing it with a relatively low
interest rate will lead to an increase in profit levels and hence performance. A negative
association was established between long term debt (LDA) and profitability. The study
recommends that owing to the less cost incurred in obtaining short term loans than long
term ones, banks should go for short term loans since despite changing the firm's capital
structure to the worse.
Citation
A Research Project Submitted In Partial Fulfillment Of The Requirement For The Award Of The Degree Of Master Of Business Administration School Of Business, University Of NairobiPublisher
University of Nairobi School of Business