Influence of Financial Leverage on Financial Performance of Firms Listed Under Construction and Allied Sector at the Nairobi Securities Exchange, Kenya

Abstract

The incorporation of borrowed funds in a firm’s capital mix has been observed to have a substantial consequence on the firm which can either be a success or failure. An optimal capital structure consisting of equity and debt impacts corporate value along with stock prices in the securities exchange market. The research project aims to ascertain the influence of financial leverage on financial performance of construction and allied enterprises registered at the Nairobi Securities Exchange. A descriptive approach was chosen for the research. The focus of this study was on the five construction companies licensed by the Capital Market Authority and currently trading their shares at the NSE. Secondary data was collected from the corporates’ published audited financial statements from the year 2011 to 2020. Descriptive statistics, multiple regression and correlation analysis methods were utilized to analyze the collected data. The results established that, financial leverage significantly and positively influences financial performance of construction corporates registered at the NSE. It was also determined by the study that, the registered construction and allied enterprises’ financial performance was positively and significantly influenced by their sizes. Sales growth was further determined by the findings to significantly and positively have influence on the quoted construction and allied companies’ financial performance. Financial performance of the quoted construction enterprises was finally found to be significantly and positively impacted by the firms’ liquidity.