FACTORS INFLUENCING SPLIT OF EQUITY CAPITAL STRUCTURE AMONG HOSPITALITY INDUSTRY COMPANIES IN NAIROBI COUNTY KENYA
Abstract
The inadequacy of capital in the hospitality industry in Nairobi City County has been a challenge that has affected its operations. Thus, the study examined factors that influence the choice of split of equity capital structure in hospitality industry companies in Nairobi City County. The study adopted the explanatory research design. The target population of the study was 36 hotels and restaurants within Nairobi County with a 50/50 equity structure or 2 owners. The sampling frame was 72 directors and 144 managers. Data was collected using the questionnaires. The correlation results showed that a positive and significant association exists between shared responsibilities, capital share, business relationship, business value and split of equity capital structure. The regression results established that shared responsibilities and split of equity capital structure are positively and significantly related (β=0.155, p=0.001). Equally, the regression results established that capital share is positively and significantly related to the split of equity capital structure (β=0.144, p=0.004). Business relationship and split of equity capital structure are positively and significantly related (β=0.467, p=0.000). In addition, the business value is positively and significantly related to the split of equity capital structure (β=0.242, p=0.000). The study concluded that shared responsibilities, capital share, business relationship and business value are positively and significantly related to the split of equity capital structure. It was recommended that owners of a business may settle on a 50/50 equity sharing based on each partner's roles and responsibilities. The shared responsibilities should be based on time investing, intellectual property and industry expertise. The split of equity capital structure should be based on the capital share. Moreover, the study recommended that the split of equity capital structure should be guided by business relationships. The business value should be guided by the business's balance sheet, market share and capitalization. The organization should look for strategies that will enhance the business value since value expands visibility in the market and expands its market share. It was recommended that future studies can be done on other sectors other than hospitality industry companies. Future studies can examine whether ownership structure and type of the business can influence the split of equity capital structure. Conducting the studies in diverse firms will intensify comparison for effective decision-making.
Key Words: Business relationship, Equity capital, Share Capital, Shared responsibilities & Business Value
CITATION: Dichosa, E. I., & Weda, C. (2022). Factors influencing split of equity capital structure among hospitality industry companies in Nairobi County Kenya. The Strategic Journal of Business & Change Management, 9 (4), 544 - 558.
Full Text:
PDFReferences
Abubakar, A. (2015). Relationship between financial leverage and financial performance of deposit money banks in Nigeria. International Journal of Economics, Commerce and Management, 3(10), 759-778.
Aggarwal, D., & Padhan, P. C. (2017). Impact of capital structure on firm value: evidence from Indian Hospitality Industry. Theoretical Economics Letters, 7(4), 982-1000.
Belkhir, M., Maghyereh, A., & Awartani, B. (2016). Institutions and corporate capital structure in the MENA region. Emerging Markets Review, 2(6) 99-129.
Brounen, D., & Eichholtz, P. M. (2001). Capital structure theory: Evidence from European property companies' capital offerings. Real Estate Economics, 29(4), 615-632.
Charman, A. J., Petersen, L. M., Piper, L. E., Liedeman, R., & Legg, T. (2017). Small area census approach to measure the township informal economy in South Africa. Journal of Mixed Methods Research, 11(1), 36-58.
Chow, Y. P., Muhammad, J., Bany-Ariffin, A. N., & Cheng, F. F. (2018). Macroeconomic uncertainty, corporate governance and corporate capital structure. International Journal of Managerial Finance., 5(1), 27-42
Dabrowska, J. (2009). Does dividend policy follow the capital structure theory?. Managing Global Transitions, 7(4), 367-373
Das, K. R., & Imon, A. H. M. R. (2016). A brief review of tests for normality. American Journal of Theoretical and Applied Statistics, 5(1), 5-12.
Frank, M. Z., & Shen, T. (2019). Corporate capital structure actions. Journal of Banking & Finance, 10(6) 384-402.
Freiman, J. A., Chalmers, T. C., Smith, H. A., & Kuebler, R. R. (2019). The importance of beta, the type II error, and sample size in the design and interpretation of the randomized controlled trial: survey of two sets of “negative” trials. In Medical uses of statistics (pp. 357-389). CRC Press.
Gathogo, G. M., & Ragui, M. (2014). Capital structure of Kenyan firms: What determines it? Research Journal of Finance and Accounting, 5, (5)118-125
Glinkowska, B., & Kaczmarek, B. (2015). Classical and modern concepts of corporate governance (Stewardship Theory and Agency Theory). Management, 19(2), 84-92.
Han, S., & Zhou, H. (2016). Effects of liquidity on the non-default component of corporate yield spreads: Evidence from intraday transactions data. Quarterly Journal of Finance, 6(3), 16-35
Ishak, N. M., Bakar, A., & Yazid, A. (2014). Developing Sampling Frame for Case Study: Challenges and Conditions. World Journal of Education, 4(3), 29-35.
Jones, P., & Wynn, M. G. (2019). The circular economy, natural capital and resilience in tourism and hospitality. International Journal of Contemporary Hospitality Management, 1(4), 51-59
Keen, S., & Standish, R. (2006). Profit maximization, industry structure, and competition: A critique of neoclassical theory. Physica A: Statistical Mechanics and its Applications, 370(1), 81-85.
Kiprop, V. K. (2014). Effect Of Capital Structure On Value Of Firms Listed In Nairobi Securities Exchange (Doctoral dissertation, University Of Nairobi).
Liu, C. H. (2017). The relationships among intellectual capital, social capital, and performance-The moderating role of business ties and environmental uncertainty. Tourism Management, 61(5), 553-561.
Mangantar, M., & Ali, M. (2015). An analysis of the influence of ownership structure, investment, liquidity and risk to firm value: Evidence from Indonesia. American Journal of Economics and Business Administration, 7(4), 166-176.
Mugenda, O. M & Mugenda, A. G. (2008) Research methods: Quantitative and qualitative approaches. Acts Press. Nairobi
Njoroge, J. G. (2018). Effect of voluntary disclosure on cost of equity capital of companies quoted at Nairobi Securities Exchange in Kenya (Doctoral dissertation, Kca University).
Onyango, F., & Ngahu, S. (2018). Influence Of Working Capital Management On Financial Distress In Hospitality Industry (A Study Of Four And Five Star Hotels In Nairobi County). IOSR Journal of Economics and Finance 9 (3) 52-59
Pinegar, J. M., & Wilbricht, L. (2003). What managers think of capital structure theory: a survey. Financial Management, 6(5), 82-91.
Quinton, S., & Wilson, D. (2016). Tensions and ties in social media networks: Towards a model of understanding business relationship development and business performance enhancement through the use of LinkedIn. Industrial Marketing Management, 5(4) 15-24.
Rotich, A. K., & Wanjau, K. (2017). The Effects of Relationship Banking and Entrepreneurial Orientation on Financial Performance of Manufacturing Firms in Kenya. KCA Journal of Business Management, 8(1), 37-45
Strebulaev, I. A. (2007). Do tests of capital structure theory mean what they say?. The journal of finance, 62(4), 1747-1787.
Venkatesan, K., & Mayanja, K. (2019). Capital structure and profitability: An empirical analysis of public companies of Botswana in tourism industry. ZENITH International Journal of Multidisciplinary Research, 9(7), 185-195.
Zaitseva, N. A., Larionova, A. A., Yumatov, K. V., Korsunova, N. M., & Dmitrieva, N. V. (2016). Assessment of the Impact of Globalization on the Introduction of Innovative Technology Companies in the Hospitality Industry. International Journal of Environmental and Science Education, 11(14), 76-85.
Zeitun, R., Temimi, A., & Mimouni, K. (2017). Do financial crises alter the dynamics of corporate capital structure? Evidence from GCC countries. The Quarterly Review of Economics and Finance, 7)4), 21-33.
DOI: http://dx.doi.org/10.61426/sjbcm.v9i4.2428
Refbacks
- There are currently no refbacks.
This work is licensed under a Creative Commons Attribution 3.0 License.
PAST ISSUES:
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.