EFFECT OF FINANCIAL STRUCTURE ON FIRM VALUE OF NON-FINANCIAL FIRMS LISTED IN NAIROBI SECURITIES EXCHANGE; KENYA
Abstract
The study sought to establish to establish the effects of financial structure on firm value of non-financial firms listed in Nairobi Securities Exchange. The research concentrated on long term debt, current liabilities, share capital and retained earnings as independent variables and firm value as the dependent variable. Tobin’s Q was used to indicate firm value while Pearson correlation and regression analysis were adopted to analyze the panel data collected from 36 firms sampled out of all the 50 listed non-financial firms in Kenya. Secondary panel data was collected from audited and published financial reports for the period from 2012-2016. STATA was used for regression analysis. Panel data diagnostic test was carried out to determine the nature of the panel data and best model for analysis. The findings indicated that current liabilities and retained earnings have significant positive effect on firm value while long term debt and share capital were found to have an insignificant positive and negative effect on firm value respectively. This study recommended that the listed non-financial firms should seek to employ more debt given its tax benefits but more so work towards attaining an optimal financial structure that features an optimal cost of financial and hence better returns and improved firm value. Secondly, the firms should consider a dividend policy that enhances retained earnings as this was found to have a positive and significant effect on firm value. Retaining sizeable earnings enables the firm to easily pursue growth without having to raise funds from external forms of financing which comes with costs.
Key Words: Long Term Debt, Current Liabilities, Share Capital, Retained Earnings, Firm Value
CITATION: Mabeya, H. K., & Kariuki, P. (2019). Effect of financial structure on firm value of non-financial firms listed in Nairobi Securities Exchange; Kenya. The Strategic Journal of Business & Change Management, 6 (2), 1989 –1993.
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DOI: http://dx.doi.org/10.61426/sjbcm.v6i2.1233
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