CAPITAL STRUCTURE AND FINANCIAL PERFORMANCE OF COMMERCIAL BANKS LISTED AT THE NAIROBI SECURITIES EXCHANGE, KENYA
CAPITAL STRUCTURE AND FINANCIAL PERFORMANCE OF COMMERCIAL BANKS LISTED AT THE NAIROBI SECURITIES EXCHANGE, KENYA
Julie Maseyan Lekurle - Postgraduate Student, Department of Business, School of Business Economics and Tourism, Kenyatta University, Kenya
Anthony Thuo (CPA) - Lecturer, Department of Business, School of Business Economics and Tourism, Kenyatta University, Kenya
ABSTRACT
Commercial banks in Kenya have had massive delisting, others experienced an adverse effect of debt-to-equity ratio and return on assets, experienced significant capital deficiencies and liquidity, while other banks listed had not been adhering to the required daily cash reserve ratio of 5.25%. The performance of these banks therefore, has been mixed and dramatically linked to capital structure. The study purposed to establish ways in which financial performance of commercial banks listed in NSE is influenced by capital structure. Specifically, the research aimed to establish the influence of ordinary share capital, to determine the effect of retained earnings, and long-term debt on commercial banks listed in NSE financial performance. Bank size as a moderating variable was also be determined. The research was grounded on three theories: profit maximization, pecking order and trade-off theories. The research was based on descriptive research design. The research target population comprised of Nairobi securities exchange 11 listed commercial banks in Kenya as of 2022. A census in these selected financial institutions was done for information gathering on the banks Return on Assets to determine financial performance. The type of data used was secondary data derived from central bank of Kenya, the listed banks financial statements that are audited, as well as Kenya National Bureau of Statistics. The study period was 5years from 2018. A panel regression model was employed to analyse data through the medium of statistical package for social sciences version 29.0. The study findings ascertained that increasing unit levels of ordinary share capital, retained earnings and long-term debt have positive effect on the financial performance of commercial banks listed at the Nairobi Securities Exchange, Nairobi. It was also revealed that bank size significantly influenced the relationship between financial performance and capital structure. This study, therefore, recommends that commercial banks listed at the Nairobi Securities Exchange need to reassess their capital structuring so that they can realize better financial performance. This study provides a basis for enhancing a strong capital structure. The findings of this study may guide building strong capital structure, specifically on ordinary share capital, retained earnings and long-term debt. In lieu of these determinants of capital structure, this study offers a basis to improving financial performance.
