Effect of capital structure on financial performance: the case of banks listed on the Nairobi securities exchange.

Abstract

This paper seeks to examine the relationship between capital structure and bank perfonnance in Kenya. This study has employed the use of panel data techniques to analyze the relationship between capital structure and bank performance. The performance variables used in the study were retum on asset (ROA), Retum on equity (ROE) and net interest margin (NIM). The results from Levin-Lin-Chu and Im-pesaran-shin unit root test show that all the variables were stationary in levels. The study hypothesized negative relationship between capital structure and bank performance, The results also indicate that capital structure does not detennine bank performance but rather it is performance that determines banks capital structure.