Determinants Of Capital Structure And Their Influence On Value Of Investment Firms Listed At Nairobi Securities Exchange, Kenya

Abstract

The main goal of a firm is to maximize the wealth and firm’s value, which means also to maximize the wealth of shareholders.Throughout ithe iliterature, idebates ihave focused on whether there is an optimum capital structure for an iindividual iFirm ior iwhether ithe iproportion ior ilevel iof idebt iusage iis iirrelevant ior irelevant ito ithe iFirm’s ivalue. iThe ipurpose iof ithis istudy iwas ito iassess ithe ideterminants iof icapital istructure iand itheir iinfluence ion ivalue iof iinvestment ifirms ilisted iat ithe iNairobi iSecurities iExchange, iKenya. iThe iindependent ivariables iused iin ithis istudy iwere ileverage, iiquidity, asset tangibility and growth opportunities, while the dependent variable was the value of the investment firms listed in the Nairobi Securities Exchange.This research was anchored on ithe following theories that explain the relationship between the determinants of capital structure and their influence on the value of firms: Modigliani & Miller’s Proposition, Trade Off Theory and Pecking Order Theory. This study adopted descriptive research design, which involved analysis of existing data information, surveyof data, tests that allowed to test if the research area was operating as iintended and finally statistical analysis of data collected. The population unit of analysis consisted of all the 6 investment firms listed in ihe Nairobi Securities Exchange falling into the investment and Investment Services category.The study applied census sampling techniques where all the 6 firmsiwere be considered or he study. The data collection techniques applied by this study were secondary data which included the financial statements for all the investment firms in Nairobi’s Securities Exchange Handbook Series for the years 2000-2018.The collected data was analyzed using both the descriptive and ithe iinferential istatistics, iand iSPSS icomputer ipackage version 21 was used in the analysis. The findings of this study indicate that liquidity, ieverage and asset tangibility are not key determinants of value in investment firms listed at Nairobi Securities Exchange. However, growth opportunity isnoted to be a key determinant of value in investment firms listed at Nairobi Securites Exchange. This study concludes that leverage and liquidity have a positive association with value of firms listed at the Nairobi Securities Exchange. On the other hand, asset tangibility and growth opportunities have a negative association with value of firms listed at the Nairobi Securities Exchange. This research study was limited to the Kenyan perspective.The study recommends further research to be undertaken for similar study using a purely different kind of determinants of capital structure to assess whether the findings will be consistent or hold true to the ones found in this study.