EFFECT OF PROFITABILITY ON CAPITAL STRUCTURE CHOICE FOR COMMERCIAL BANKS OPERATING IN KENYA
Abstract
The purpose of the study was to explore the effect of profitability on capital structure choice for commercial banks operating in kenya. A correlational research design was used to measure the relationship between the firm profitability and the capital structure choice. The study used secondary data over the period 2004-2013 from 39 commercial banks’ annual financial reports filed with the Central Bank of Kenya. The data was analysed using Statistical Package for Social Sciences (SPSS) using multiple linear regression models to test the relationship between the firm profitability and the capital structure choice (debt-equity ratio). The study found that firm profitability had significant effect on the capital structure choice and exhibited a negative and linear correlation with capital structure choice. The study further found that there was a significant moderating effect of ownership on the capital structure choice. The study recommended that future studies could extend these findings by seeking to; establish the effects of interest rate capping on credit access among commercial banks in Kenya, determine the role of financial supermarket model on the bank profitability in Kenya and explore the impact of mergers and acquisitions on the performance of commercial banks in Kenya.
Keywords: Capital Structure, Weighted Average Cost of Capital, Profitability
CITATION: Kimoro, J. N., Muturi, W., & Gekara, M. (2019). Effect of profitability on capital structure choice for commercial banks operating in Kenya. The Strategic Journal of Business & Change Management, 6 (2), 323 – 332.
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DOI: http://dx.doi.org/10.61426/sjbcm.v6i2.1115
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