Effect of Capital Structure on Return on Asset of Commercial and Services Firms Listed at Nairobi Security Exchange
DOI:
https://doi.org/10.47604/ijfa.3500Keywords:
Capital Structure, Nairobi Securities Exchange, Return on AssetAbstract
Purpose: Reviewing what conditions influence how much capital little list companies raise is the basis for capital structure research. It researcher intended to understand how the structure of capital affects the Return on Assets of listed Commercial and Services Firms in Kenya during the years 2020–2024. The investigation had set aims which included observing how retained earnings, share capital, debt and equity play a part in establishing the capital structure and to use ROA as the main gauge of financial results.
Methodology: Data from audited financial statements from Commercial and Services Firms listed at Nairobi Security Exchange, instructions from the Capital Market Authority handbook, magazines, business journals, articles and websites was the secondary information used. Descriptive research was the method and statistical methods such as data analysis, correlation analysis and multiple regression analysis were used to look at the data. All Commercial and Services Companies listed on the Nairobi Security Exchange made up the population. For the research, the sample used were all organizations that were entered by the employees.
Findings: It was found, that not all the companies supplied the data required for public access. Two other companies stopped running their operations for the time it took to collect the data. Retained earnings, share capital and return on asset all appear to be related for the Commercial and Services Firms listed at NSE, Kenya. When if rises, return on assets declines and this trend is significant for Commercial and Service Firms on the NSE, Kenya. Also, at NSE, Kenya, equitable companies in Commercial and Service Firms don’t have a statistically significant impact on their return on assets.
Unique Contribution to Theory, Practice and Policy: The study recommended that a holistic approach to capital structure can enhance firm profitability and financial sustainability. Moreover, aligning policy frameworks, corporate financial practices, and theoretical models with these findings will enable stakeholders to make more informed decisions that foster long-term value creation within Kenya’s Commercial and Service Sectors.
Downloads
References
Ali, A., & Anwar, S. (2020). Capital structure and firm performance: Evidence from manufacturing firms in developing countries. Journal of Economic Studies, 47(2), 241–260. https://doi.org/10.1108/JES-05-2019-0212
Berle, A., & Means, G. (1932). The Modern Corporation and Private Property Macmillan. New York, 2(3), 45-53.
Boshinak, H. (2023). The impact of capital structure on firm performance: evidence from Saudi-listed firms. International Journal of Disclosure and Governance, 20(1), 15-26.
Boussiki, H. (2023). The effect of capital structure on the financial performance of companies listed on the Algerian stock exchange: Case of the Saidal group. Finance and Business Economies Review, 7(1), 258-270.
Dahmash, F. N., Alshurafat, H., Hendawi, R., Alzoubi, A. B., & Al Amosh, H. (2023). The retained earnings effect on the firm’s market value: Evidence from Jordan. International Journal of Financial Studies, 11(3), 89.
Fosu, S. (2019). Capital structure and firm performance: Evidence from African economies. Research in International Business and Finance, 47, 104–116. https://doi.org/10.1016/j.ribaf.2018.07.005
Habibniya, H., Dsouza, S., Rabbani, M. R., Nawaz, N., & Demiraj, R. (2022). Impact of capital structure on profitability: panel data evidence of the telecom industry in the United States. Risks, 10(8), 157.
Hoa, N. T. K., & Huong, N. T. T. (2020). Determinants of Capital Structure in the Presence of Supply Chain Activities of Listed Construction Firms in Vietnam. International Journal of Supply Chain Management, 9(5), 462-470.
Kraus, A., & Litzenberger, R. H. (1973). A state‐preference model of optimal financial leverage. The journal of finance, 28(4), 911-922.
Maina, L., & Ishmail, M. (2019). Capital structure and financial performance of firms listed at Nairobi Securities Exchange in Kenya. International Journal of Social Sciences and Information Technology, 5(4), 45–60.
Manyanga, W., Kanyepe, J., Chikazhe, L., & Manyanga, T. (2023). The effect of debt financing on the financial performance of SMEs in Zimbabwe. Cogent Social Sciences, 9(2).
Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48(3), 261-297
Modigliani, F., & Miller, M. H. (1963). Corporate income taxes and the cost of capital: A correction. The American Economic Review, 53(3), 433-443.
Musyoka, A., & Muturi, W. (2019). Effect of capital structure on financial performance of small and medium-sized enterprises in Kenya. International Journal of Economics, Commerce and Management, 7(4), 1–15.
Mwangi, L. W., Makau, M. S., & Kosimbei, G. (2019). The relationship between capital structure and performance of non-financial companies listed at the Nairobi Securities Exchange. European Scientific Journal, 15(10), 376–393. https://doi.org/10.19044/esj.2019.v15n10p376
Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187–221. https://doi.org/10.1016/0304-405X(84)90023-0
Nguyen, T. H., & Nguyen, H. M. (2020). Equity financing and firm performance: Empirical evidence from Vietnam. Asian Economic and Financial Review, 10(6), 671–683. https://doi.org/10.18488/journal.aefr.2020.106.671.683
Njuguna, M., & Munene, C. (2020). Capital structure and firm performance: Empirical evidence from firms listed at the Nairobi Securities Exchange. International Journal of Finance and Accounting, 9(4), 115–125.
Nyaga, R. M., & Deya, J. (2022). influence of capital structure on financial performance of construction and allied firms listed in Nairobi Securities Exchange in Kenya. international journal of finance, 7(2), 35-55.
Odero, R. O., & Mutswenje, V. S. (2021). Capital structure and financial performance of micro financial institutions in Nairobi City County Kenya. International Academic Journal of Economics and Finance, 3 (7), 308-328.
Omondi, E. A., & Muturi, W. (2020). Capital structure and financial performance: Evidence from listed firms in Kenya. Journal of Finance and Investment Analysis, 9(2), 43–55.
Onsongo, S. K., Muathe, S. M., & Mwangi, L. W. (2020). Financial risk and financial performance: evidence and insights from commercial and services listed companies in Nairobi securities exchange, Kenya. International Journal of Financial Studies, 8(3), 51.
Shaik, M. B., Kethan, M., Rani, I., Mahesh, U., Harsha, C. S., Navya, M. K., & Sravani, D. (2022). Which determinants matter for capital structure? an empirical study on NBFC'S in India. International Journal of Entrepreneurship, 26, 1-9.
Sulaiman, A. S., & Khalid, K. M. (2024). Effect of equity capital on the financial performance of listed agricultural firms in Nigeria. International Journal of Business and Allied Studies, 2(2), 135–150.
Wanjiku, S. N., & Muturi, W. (2020). Retained earnings and financial performance of listed firms in Kenya. Journal of Finance and Investment Analysis, 9(3), 45–60.
Wanyonyi, C.F., Fwamba, R., & Wanyama, S.B. (2024). The Effect of Share Capital on Financial Performance: A Case Study of SACCOs in Western Kenya. Iconic Research and Engineering Journals, 8(1), 162-167.
Wanzala, R. W., & Obokoh, L. (2024). The Effects of Working Capital Management on the Financial Performance of Commercial and Service Firms Listed on the Nairobi Securities Exchange in Kenya. Risks, 12(8), 119. https://doi.org/10.3390/risks12080119
Yugi, W. B., & Wekesa, M. (2023). Capital structure and financial performance of manufacturing companies in coast region, Kenya. The Strategic Journal of Business & Change Management, 10 (2), 1122 – 1140.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2025 Susan Wairimu Mugo, Dr. Thomas Githui, Dr. Elias Mwangi
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
