The Relationship Between Capital Structure And Financial Performance Of Agricultural Firms Listed At Nairobi Securities Exchange
The financing decision is one of the most important roles played by a modern financial manager as they determine value of a firm. Managers strive to maintain capital structure that maximizes the shareholders wealth while minimizing financial and business risks of the firm. The main objective of the study was to examine the relationship between capital structure and financial performance of agricultural firms listed at the NSE. The population in the study was all the 7 firms listed in the NSE under the agricultural sector. Secondary data was used in this study. The study being descriptive in nature the quantitative method of data analysis and inferential analysis was used to analysis techniques. From the findings on the Adjusted R squared , from the study there was variation of financial performance of agricultural firms listed in the NSE due to variations in Short term long term debt and revenue. The study revealed that Capital structure of a firm is factors influencing the financial performance of agricultural firms listed in the NSE. From the findings on the correlation analysis the study revealed that there was a strong relationship between capital structure and financial performance. The study further brings out that, the findings form analyzed data is ideal for making a conclusion on the influence of in short term, long term debt and revenue on financial performance of agricultural firms listed at the NSE. There is need for the firms listed in the NSE to have a strong capital structure which provides them strength to withstand financial crises and offers shareholders a better safety net in times of depressions. Thus firms on NSE appear to use less debt in their capital structure making many firms to pay less interest. Thus not increasing the risks the firm may be exposed to as debt tend to reduce performance. The study recommends that there is need for the firms listed in the NSE to adopt strategies that would increase their revenue base and utilize the profits generated from the operations to acquire more assets and improve their financial performance.