The Relationship Between Capital Structure and Financial Performance of Companies Listed at the Nairobi Securities Exchange

Abstract

It has been noted that whether to employ equity or debt sources of financing is an important consideration for a firm that requires investing. There are many theories put in place to support an equilibrium debt-equity structure in a notion to achieve the best performances, for example the Modigliani-Miller theorem reflects that managers make independent decisions regarding the choice of sourcing.Its relevant to state that this research has further motivated other researchers to conduct more research about the correlation existing between capital structure and firms financial performance. It is therefore important to state that, the significant role of this study is to find out the impact of capital structure on financial performance of companies quoted at the Nairobi securities exchange in Kenya. The period that the study was conducted was 2015, and imperative to note that, during this period there is a lot of political unrest in Kenya, that leads to uncertainty in the companies under the NSE, market. Debt ratio was used as indicator determining the Return on Equity. In this regard it prepared a very impressive researchable moments, since there is a lot of civil unrest that is affecting the smooth flow of businesses. There are about 65 companies listed at the NSE market, hence form the population of study. The Secondary data applied in this study was obtained from the handbook of these firm s as well as their publications. The data collected was analysis by the use of Regression Analysis Model as well as the Statistical Package for Social Sciences Software. The findings indicate that when the dept ratio is high, the return on equity also goes down. This therefore means , there is need for the injection of capital to boost these businesses rather than borrowing, since the benefit of the companies are less than the cost of production, hence impossible to fund or services a loan.