Effect of financial leverage on corporate investment for non financial firms listed at the Nairobi securities exchange

Abstract

Investment decision always attracts financing decision, hence making financing and investment relationship a central issue in the study of corporate finance. The objective of the study was to establish the effect of financial leverage on corporate investment of nonfinancial firms listed at the Nairobi Securities Exchange for a period of five years (2009 - 2014). A casual research design was adopted for the study. The study made use of secondary data which was obtained from NSE library, CMA and firm’s annual reports which are publicly available. Population consisted of 62 listed firms out of which, 45 companies were to be studied. The 17 financial: banks and insurance firms were not considered due to the regulatory in the sector. The response rate was 82.2% ie 37 firms out of 45. The research used quantitative techniques in analyzing the data using SPPS version 21.0 The study found that financial leverage has a significant negative effect on corporate investment. Liquidity also has a negative effect on investment. The firm’s decision on investment is directly related to the Cash flow, Profitability, Firm size and Growth whereas an inverse relationship exists with Leverage and Liquidity. Management should explore other variables like incentive to managers, good corporate governance and prudent use of available resources to improve the firm’s performance.