Determinants of Capital Structure in the Kenyan Mobile Telecommunication Companies

Abstract

Theoretically, it is hypothesis in the pecking order that that management usually has more information regarding the company than the outside investors. These mixed results from various theories give need for research to investigate on the determinants of leverage of the company. In the Kenyan context, capital structure on profitability, capital structure decision making and capital structure on performance have many researchers review on these aspects. There is mixed empirical evidence on the determinant of capital structure among telecommunication in developed countries , hence the research gap which this study sought to fill by conducting a study in developing country like Kenya. The objective of the study was to establish the determinants of capital structure in the Kenyan mobile telecommunication industry. The study adopted descriptive research design study in which data was gathered just once over the period 8 years from 2009 to 2015 for 4 telecommunication companies in Kenya. The study was facilitated by use of secondary data. Multiple regression analysis was applied to the data to establish the determinants of capital structure in the Kenyan mobile telecommunication industry. The study found that that 80.4% changes on capital structure of telecommunication firms could be accounted for by changes in firm size, asset tangibility, firm growth, profitability and earning volatility. The study also revealed that there was strong relation ship between capiatl structure and firm size, asset tangibility, firm growth, profitability and earning volatility. The study further revealed that firm size, asset tangibility, firm growth, profitability and earning volatility significantly affects capital structure of telecommunication firms in Kenya. From the finding the study found that firm size had positive significant effect capital structure) of telecommunication firms. The study also revealed that asset tangibility had positive significant effect on capital structure of telecommunication firms. The study established that firm growth had positive significant effect on capital structure of telecommunication firms. The study found out that profitability had negative significant effect on capital structure of telecommunication firms. The study revealed that earning volatility had negative significant effect on capital structure of telecommunication firms. The study found that firm size, asset tangibility and firm growth positively influence the capital structure of telecommunication firms, whereas profitability and earning volatility were found to negatively affect the capital structure of telecommunication firms.