EFFECT OF FINANCIAL LEVERAGE AND RISK MANAGEMENT ON PROFITABILITY OF COMMERCIAL BANKS LISTED AT THE NAIROBI SECURITIES EXCHANGE (NSE) KENYA
Abstract
This study sought to establish the effect of financial leverage and risk management on profitability of commercial banks listed at Nairobi Securities Exchange (NSE). The theoretical framework encompassed a review of the shift ability theory and risk management theory. The study used a longitudinal research design. The target population comprised of the 11 commercial banks listed at NSE. The sampling technique of this study was drawn from eleven commercial banks listed at NSE hence census sampling. Secondary data was collected from website of Central Bank of Kenya and published banks annual profitability between 2016 and 2020. The data was analyzed using descriptive statistics techniques: standard deviation, means, and minimum, maximum, multiple regression analysis, correlation analysis and t test value analysis. STATA 15 software was used in the analysis. The study found that financial leverage had positive and statistically significance on profitability. The study also established that risk management had positive and statistically significance on profitability. The study concluded that financial leverage and risk management have statistically significant effect on profitability of commercial banks listed (NSE). The study recommended that the regulators should introduce capital buffers above the minimum statutory requirement to shield the listed commercial banks from any unforeseen economic shocks likely to arise from their operating environment. Managers of listed firms should maintain proper proportions of leverage in their capital structure.
Key Words: Financial Leverage, Financial Risk Management
CITATION: Angima, C. M., Miroga, J., & Otinga, H. N. (2022). Effect of financial leverage and risk management on profitability of commercial banks listed at the Nairobi Securities Exchange (NSE) Kenya. The Strategic Journal of Business & Change Management, 9 (1), 585 – 599.
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DOI: http://dx.doi.org/10.61426/sjbcm.v9i1.2209
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