| dc.description.abstract | Efficient financial management requires the existence of some objective or goal because
judgment as to whether or not a financial decision is efficient must be made in light of
some standard. Various objectives are possible of which the primary goal of the firm is to
maximize the wealth of the firm’s present owners. This study sought to find out the effect
of industry leverage on firm’s performance.
The objective of this study is to evaluate the relationship between Industry Capital
Structure norms and the performance of companies in the Industry. Secondary data was
collected from the NSE. All sectors of the NSE are involved in the study with exception
of the financial and investment sector whose leverage is subject to regulation. The sample
period was five years between 2002 and 2006.
The findings of the study were commercial and services sector had the highest figures for
leverage ratio, market value to book value and price earning ratio. Among the companies
involved in the study, Total Kenya and City Trust did not finance its operations with
debt. Those with highest leverage ratios comprised of; Express Kenya Limited, Kakuzi
limited, Kenya Power and Lighting Company Limited, Kenya Airways limited and East
African Portland Cement. Firms adopting Industry leverage had low leverage ratio,
similar to that of the industry, higher MV/BV and a higher PER as compared to the rest
of the firms. This leads to the rejection of the null hypothesis that conformist firms do not
record higher performance than non-conformist firms and acceptance of the alternative
hypothesis.
Further, in carrying out regressions tests and Analysis of Variance tests (ANOVA) it was
found out that there was a significant difference in leverage for different Industries.
Commercial and services sector had the highest financial leverage followed by Industrial
and Allied sector and finally Agricultural sector. This is a manifestation of capital
structure theories that different firms have different optimal capital structures depending
upon firm characteristics. | en |
