Relationship Between Financial Structure and the Financial Performance of Manufacturing and Allied Firms Listed at the Nairobi Securities

Abstract

Corporates operate in an increasingly volatile and dynamic environment where control is limited. Most affected by the volatility in local and international markets are manufacturing firms due to high cost of imported raw materials and foreign exchange shocks. I t behooves a corporate to control its internal factors to maximize returns and stay afloat. Capital structure is one of those factors that a corporate has considerable control over and its optimal composition can positively influence performance. The research was an inquiry into the nature and extent of the connection between capital structure and performance Kenyan manufacturing entities listed at the Nairobi Securities Exchange. Secondary data was gathered from the eight entities listed at the exchange as at 31st December 2021 Data collected was analyzed for descriptive and correlational characteristics using a regression model. Inferences drawn were to the effect that capital structure has a substantial impact on financial performance. Share capital, long-term debt and short-term debt affected performance positively while retained earnings affected performance negatively. The researcher recommends entities to use more leverage to fund operations and increase share capital but should reduce their retained earnings possibly by converting to share capital or increasing dividend payout ratio. The study recommends efficient working capital management to take advantage of short-term debt which displayed the highest beneficial impact