EFFECTS OF SELECTED FIRMS CHARACTERISTICS ON CAPITAL STRUCTURE DECISIONS OF FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE

Citation:
"EFFECTS OF SELECTED FIRMS CHARACTERISTICS ON CAPITAL STRUCTURE DECISIONS OF FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE ." African development finance journal . 2017;1(2):102-116 .

Abstract:

Purpose - Capital structure choice remains a crucial decision alongside the vital choices intended by a corporate since they have a high consequence on the value and the cost of the company. Therefore this study main focus was to examine the effects of selected firms characteristics on the capital structure decisions of companies registered at the Nairobi Stock exchange.
Methodology - The study adopted a descriptive research design and used secondary data. The collected data was analyzed with the help of the SPSS software version 23 and presented with the help of frequency distributions, computation of mean and standard deviation. The association between the research variables was presented in a correlation matrix and a regression model.
Findings - Firm size showed greatest influence on the company choice of capital structure among the firms followed by asset structure, profitability and liquidity. Further, the regression model also generated adjusted R squared value of 0.692 that is to mean 69.2% of the variations in financing options can be well illustrated by variations in the firm size, asset structure, profitability and liquidity. The findings from the study indicated an affirmative correlation among firm’s size and the financing options. The findings also revealed an affirmative association among assets structure against the source of financing. The findings from the research also showed that there is undesirable association among the firm’s profitability and source of financing of the firms listed at the NSE while a negative relationship among liquidity and the principal investment was exhibited in the research findings. This leads to a conclusion that rise in company size resulted to a rise in the investment structure of a firm therefore increase in demand to increase the capital base by seeking more financing. The study also found out that an increase in asset structure resulted in an increase in capital structure while an increase in profitability levels resulted in decrease in capital structure; increase in in liquidity levels led to a decrease in capital structure of the firms listed at the NSE.
Implications –The study findings emphasize that firms should understand the specific characteristics that influence choice of their respective capital structure in order to opt for the best financing option. The study also further suggested that similar studies should be carried out every three to five years to find out the significance of firm characteristics on choice of capital structure of firms listed at the NSE
Value -The findings of the study would be significant to public institutions and other non-listed firms in the choice of financing options and design of capital structure. Policy makers would infer the findings in formulation of relevant capital structure policies.
Key words: Capital structure decisions, size of the firm, asset structure, profitability, liquidity

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