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

Abstract

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.