Establishing target capital structure of commercial and services firms listed on Nairobi Securities Exchange
Date
2019
Authors
Nasio, Alfayo Stephen
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
Target capital structure is a concept that has not been fully embraced by a majority of firms listed on NSE. This has attracted the attention of most researchers and finance scholars because of the contribution it has on the growth prospects and financial capabilities of a firm. Most of the firms that have experienced financial difficulties have cited wrong capital structure decision making as one of the main causation factors. This prompted the need to carry out a research, concentrating on a sector that has been worse hit by financial difficulties, to try and establish whether these firms do have target capital structures and in an event they do, whether they are actually operating at their target capital structures. The study also sought to find out after how long these firms take to adjust back to their target leverage and what actually determines this target leverage. This was a descriptive study targeting commercial and services firms in Kenya. Total population sampling was applied in this study since the population to the study was small. A structured questionnaire and a data collection sheet were used to collect both primary and secondary data respectively. Descriptive statistics and a partial adjustment model were used for data analysis. Regarding the first objective, the study found out that commercial and services firms exhibit presence of target capital structures, however none of them operated at their target leverage levels. The study found out that it takes approximately 2 years and 8 months for these firms to adjust back to the target capital structure in an event of a deviation and lastly, the study found out that non debt tax shield, tangibility, liquidity, business risk, profitability and firm size exhibit a positive significant relationship with target leverage. These findings should be of interest to regulators, commercial and services firms, potential scholars in this area in understanding the concept of target leverage among firms listed on NSE
Description
A thesis submitted in partial fulfillment of the requirement for the Degree of Master of Commerce at Strathmore University
Keywords
Target Capital Structure, Nairobi Securities Exchange