The Effect of capital structure and agency costs on the firm value of non-financial companies listed on the Nairobi's Securities Exchange

Abstract

The value of a firm is an important indication of the financial performance of any company, more so to current and potential investors. Firm value is affected by various factors, this study singles out three factors as the independent variables; leverage, cost of capital and agency costs, as to what extent these factors affect firm value. The study population was of 46 non-financial listed companies in Kenya; only 22 companies are on focus in the study as they met the criteria of a balanced panel data approach. A sectoral approach is taken in the study, as the 22 companies are analyzed in their various sector category for a 5-year period (20 13-20 17). The regression results showed that all the independent variables, including the moderating variable of size were highly significant to firm value with a p value of 0.00 each. Leverage and cost of capital resulted in positive significance while agency cost and size resulted in negative significance. The results derived from the answered questionnaires were consistent with the regression results. The study measured firm value using Tobin's Q ratio, the overall mean aggregate of all the companies being 1.12 and indication that investing in non-financial companies in the NSE is a good investment prospect. The aggregate value of each company in the eight sectors is given. The firm value was computed based on information derived from the company's statements and to act as a guide but should not be used in isolation when making investment decisions.