Impact of private asset financing on financial performance of real estate firms in Nairobi County

Abstract

This study investigated the impact of private asset financing on the financial performance of real estate firms in Nairobi County. The research aimed to analyze how loan amount, loan tenure, interest rate, leverage, liquidity, and firm size influence financial performance metrics such as Return on Equity (ROE), Interest Coverage Ratio (ICR), and Net Profit Margin (NPM). The study employed panel data regression with a random-effects model, following a Hausman test to confirm the appropriateness of this approach over fixed-effects. Using secondary data from 347 real estate firms between 2020 and 2023, the results demonstrated that loan amount, loan tenure, and leverage significantly improved financial performance across all models, with positive coefficients for ROE (β = 0.032, p < 0.05), ICR (β = 0.040, p < 0.05), and NPM (β = 0.025, p < 0.05). Interest rate and liquidity had negative coefficients for all metrics, with significant negative effects: ROE (β = -0.022, p < 0.05), ICR (β = -0.020, p < 0.05), and NPM (β = -0.025, p < 0.05). Firm size also showed a positive but weaker relationship with the financial metrics, with p-values ranging from 0.032 to 0.065. The R-squared values for ROE, ICR, and NPM were 0.65, 0.72, and 0.68, respectively, indicating a strong explanatory power of the models. The Hausman test confirmed the suitability of the random-effects model, and the results highlighted the importance of strategic loan structuring and financial management in enhancing profitability and stability for real estate firms. These findings offer practical recommendations for real estate managers, financial institutions, and policymakers to optimize financial performance and stability in the sector.