The Effects of Lease Financing on the Financial Performance of Companies Listed in Nairobi Securities Exchange
Abstract
The economic benefits of leasing can be derived from the firm's choice of leasing relative
to borrowing and acquiring the asset. Lease financing is one of the alternatives to
straight-up purchasing if a firm is seeking the means to obtain necessary business
equipment and supplies that have the possibility of endangering the firm’s monetary flow
and stockpile. Leasing is an attractive financing instrument for lessors because it allows
them not only to avoid the usual credit risks but also to pass the property and price risks
involved in capital goods on to the lessee. The objective of the study was to determine the
effects of lease financing on the financial performance of companies listed in the Nairobi
Securities Exchange. This study adopted descriptive research design. The population of
the study was all the 64 listed companies in the NSE where all the companies were not
using lease financing, but data for only 33 firms which were using lease financing was
available for the period under study. Secondary data was collected for the firms for the
period 2010 – 2014 from the annual financial reports. The measure of financial
performance was taken as the dependent variables while amount of lease finance, size
and liquidity was taken as the independent variable. The collected secondary data was
analyzed using Statistical Package for Social Science (SPSS) version 20. A regression
analysis was conducted on the data set to determine the effect of lease finance on the
ROA for the firms listed at the NSE. From the regression results, lease financing and
liquidity had positive effects on ROA while size had negative effects on ROA. Lease
financing effects were however insignificant at 5% level of confidence, while liquidity
and size effects were significant at. 5% level of confidence. The R2 showed that the
model explained 12.1% of variance in ROA. The study concludes that there is a positive
association between lease financing and Return on Assets. Though the relationship could
be positive, it failed the significance tests at all the acceptable levels of significance.
Publisher
University of Nairobi