Capital Structure and Corporate Value of Financial Institutions Listed in Nairobi Security Exchange, Kenya
DOI:
https://doi.org/10.47604/ijfa.3354Keywords:
Capital Structure, Firm Value, Financial Institutions, Nairobi Securities ExchangeAbstract
Purpose: Corporate value refers to shareholders’ perceptions and is closely tied to the market price of equity shares, serving as an indicator of a firm’s success, with higher stock prices reflecting greater corporate value. Recent declines in profitability in Kenya’s banking and insurance sectors prompt an investigation into the role of capital structure in influencing corporate value. The general objective of this study is to determine the effect of capital structure on the firm value of listed financial institutions in Kenya.
Methodology: A descriptive longitudinal design is employed to capture the dynamic influence of capital structure over five years, from 2019 to 2023. The target population comprises 16 financial institutions listed on the Nairobi Securities Exchange in the banking and insurance sectors, and due to the small population size, a census study approach is used. Secondary panel data is collected from financial statements filed with the Capital Markets Authority and processed using STATA, ensuring that the assumptions of the classical linear regression model are met. Data analysis reveals a subtle set of findings.
Findings: The overall model explains 59.17% of the variation in corporate value. Capital structure demonstrates a strong positive influence with a coefficient of 0.53 (p-value = 0.00), underscoring its role as a significant driver of firm value. The findings underscore the importance of capital structure as a critical lever in Kenya’s financial sector.
Unique Contribution to Theory, Practice and Policy: This study offers valuable insights for regulatory bodies, policymakers, and investors seeking to optimize capital structure for value maximization, providing empirical support for strategic decisions aimed at enhancing corporate value in emerging markets.
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Copyright (c) 2025 Pricilla Wangu Mukanga, Vincent Nyagilo, Kimani E. Maina
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