CAPITAL STRUCTURE AND FINANCIAL PERFORMANCE OF MANUFACTURING COMPANIES IN COAST REGION, KENYA
Abstract
The study ascertained the influence of capital structure and financial performance of manufacturing companies in Coast region. The study employed both descriptive and quantitative research design. The sampling frame for the study comprised of 118 manufacturing companies located in Coast region. The sample size for the study comprised of 91 study participants and the period between 2018 and 2022 was covered. The participating firms were drawn from various manufacturing firms’ categories which included, building, mining and constructions, chemical and allied, energy, electrical and electronics, food and beverages, leather and footwear, metal and allied, motor vehicle assemblers and accessories, paper and board, pharmaceutical and medical equipments, plastic and rubber, textile and apparel and lastly Timber, wood and furniture; excluding service and consultancy. Secondary data was mainly used and was gathered from financial statements, books, journals, articles and magazines, among others. The study used descriptive and inferential statistics in data analysis, gathered data was dissected using STATA version 14 and analyzed data was presented in form of tables. The study found that financial leverage, funds maturity, equity structure and liquidity management had a significant effect on financial performance. The study drew the inference that financial leverage facilitated firm growth by enabling firms to invest in revenue generating projects through debt capital. Debt also had tax saving benefits on interest payments which tended to favour long term fund maturity periods although the overall influence of funds maturity on firm financial performance was found to be weak but significant and positive. The study further concluded that changes in the equity structure lead to changes in the performance of the manufacturing firms as well as improvements on liquidity management lead to an improvement on firm performance. The study recommended that the management of the firms implement the most optimal leverage level in order to hedge against operational and bankruptcy risks. Proper mix of short term and long term funds maturity should be considered to minimise the cost of capital. An optimal equity structure is to be maintained which increases the growth potential of the firms. Liquidity ratios ought to be compared with industry standards and the variances analysed corrected. This study provided useful information on how manufacturing companies can complement Government's efforts in growing the economy and achieving the Kenya Vision 2030 development program.
Key Words: Liquidity Management, Equity Structure, Funds Maturity, Financial Leverage
CITATION: 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.
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DOI: http://dx.doi.org/10.61426/sjbcm.v10i2.2654
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