A significant number of the non-financial firms listed at the Nairobi Securities Exchange (NSE) have been experiencing declining financial performance and financial growth, which deter investors from investing in such firms. Hence, the study aimed at establishing the effect of financial structure on the financial growth of non-financial firms listed at the NSE. The study was guided by the Modigliani-Miller theory, Agency Theory, Pecking Order Theory, Trade-off Theory, Market Timing Theory, and Theory of Growth of the Firm. An explanatory research design was adopted. The study’s target population comprised 45 non-financial firms listed at the NSE for a period of ten years, from 2008 to 2017. The panel model revealed that short-term debt, long-term debt, retained earnings, and share capital explain 61.36% of variations in financial growth as measured by growth in earnings per share and 65.57% of variations in financial growth as measured by growth in market capitalization. Short-term debt has a positive and significant effect on financial growth as measured by growth in earnings per share (β=0.024095, p=0.013) and growth in market capitalization (β=0.028529, p=0.006). Long-term debt has a positive and significant effect on financial growth as measured by growth in earnings per share (β=0.864088, p=0.000) and growth in market capitalization (β=0.958656, p=0.000). Retained earnings have a positive and significant effect on financial growth as measured by growth in earnings per share (β=0.951749, p=0.015) and growth in market capitalization (β=0.043784, p=0.004). Further, share capital has a positive and significant effect on financial growth as measured by growth in earnings per share (β=0.007016, p=0.000) and growth in market capitalization (β=0.09635, p=0.001). Firm size significantly intervenes in the effect of financial structure on the financial growth of non-financial firms listed at the NSE measured using growth in earnings per share. However, Firm size does not intervene in the effect of financial structure on the financial growth of non-financial firms listed at the NSE measured using growth in market capitalization. The study concludes that short-term debt, long-term debt, retained earnings, and share capital positively influence financial growth as measured by both growth in earnings per share and growth in market capitalization. The study recommends that the management of non-financial firms listed at the NSE to balance financing a firm using debt and equity. The study also recommends that the management of non-financial firms listed at NSE to encourage its shareholders to re-invest back their earnings rather than consuming them as dividends. Financial structure varies significantly depending on the sector in which a firm operates. There is a need to conduct a comparison study to establish the effect of financial structure on the financial growth of non-financial firms versus financial firms listed at the NSE. The comparison study will tell which form of financing is appropriate for non-financial firms and which one is appropriate for financial firms.
| Published in | Journal of Finance and Accounting (Volume 11, Issue 1) |
| DOI | 10.11648/j.jfa.20231101.12 |
| Page(s) | 12-25 |
| Creative Commons |
This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited. |
| Copyright |
Copyright © The Author(s), 2024. Published by Science Publishing Group |
Financial Structure, Firm Size, Financial Growth, Non-Financial Firms, Nairobi Securities Exchange
| [1] | Abeywardhana, D. (2017). Capital structure theory: An overview. Accounting and finance research, 6 (1), 17-21. |
| [2] | Aburub, N. (2012). Capital Structure and Firm Performance: Evidence from Palestine Stock Exchange. Journal of Money, Investment and Banking, 2 (3), 109-117. |
| [3] | Ahmadimousaabad, A., Bajuri, N., Jahanzeb, A., Karami, M., & Rehman, S. (2013). Trade-off theory, pecking order theory and market timing theory: a comprehensive review of capital structure theories. International Journal of Management and Commerce Innovations, 1 (1), 11-18. |
| [4] | Ahmeti, F., & Prenaj, B. (2015). A critical review of Modigliani and Miller’s theorem of capital structure. International Journal of Economics, Commerce and Management (IJECM), 3 (6), 19-35. |
| [5] | Akbarpour, M., & Aghabeygzadeh, S. (2011). Reviewing the relationship between financial structure and firms’ performance in firms traded on the Tehran stock exchange. International Journal of Business Administration, 2 (4), 175. |
| [6] | Alifani, G. A., & Nugroho, A. B. (2013). Proving Modigliani and Miller’s Theories of Capital structure: The Research on Indonesia’s cigarette companies. International journal of economic sciences, 2 (3), 18-23. |
| [7] | Alti, A. (2006). How persistent is the impact of market timing on capital structure? The Journal of Finance, 61 (4), 1681-1710. |
| [8] | Amjed, S. (2011). Impact of financial structure on firm’s Performance: A study of Pakistan’s Chemical Sector. In Society of Interdisciplinary Business Research (SIBR) 2011 Conference on Interdisciplinary Business Research. |
| [9] | Anafo, S. A., Amponteng, E., & Yin, L. (2015). The impact of capital structure on profitability of banks listed on the Ghana Stock Exchange. Research Journal of Finance and accounting, 6 (16), 26-34. |
| [10] | Ater, D. K. (2017). Market timing and capital structure: A critical literature review. Research Journal of Finance and Accounting, 8 (6), 81-94. |
| [11] | Ater, D. K., Kisaka, S. E., Iraya, C., & Mwangi, M. (2017). The Mediating Effect of Firm Growth on the Relationship between Capital Structures and Value of Nonfinancial Firms listed at the Nairobi Securities Exchange (NSE). Journal of Finance, 37 (5), 1141-1150. |
| [12] | Aziz, S. & Abbas, U. (2016). Effect of Debt Financing on Firm Performance: A Study on Non-Financial Sector of Pakistan, Open Journal of Economics and Commerce, 2 (1), 8-15. |
| [13] | Bai, J. (2009). Panel data models with interactive fixed effects. Econometrica, 77 (4), 1229-1279. |
| [14] | Bai, J., & Ng, S. (2010). Panel unit root tests with cross-section dependence: a further investigation. Econometric Theory, 26 (4), 1088-1114. |
| [15] | Baker, M., & Wurgler, J. (2002). Market timing and capital structure. The journal of finance, 57 (1), 1-32. |
| [16] | Baños-Caballero, S., García-Teruel, P. J., & Martínez-Solano, P. (2014). Working capital management, corporate performance, and financial constraints. Journal of business research, 67 (3), 332-338. |
| [17] | Baron, R. M., & Kenny, D. A. (1986). The moderator–mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of personality and social psychology, 51 (6), 11-17. |
| [18] | Baum, C. F., Schafer, D., & Talavera, O. (2006). The effects of short-term liabilities on profitability: a comparison of German and US firms (Vol. 636). Boston College Working Papers in Economics. |
| [19] | Bokhari, H. W., & Khan, M. A. (2013). The impact of capital structure on firm’s performance (A case of the non-financial sector of Pakistan). European Journal of Business and Management, 5 (31), 111-137. |
| [20] | Bryman, A. (2016). Social research methods. Oxford university press. Oxford. |
| [21] | Buvanendra, S., Sridharan, P., & Thiyagarajan, S. (2017). Firm characteristics, corporate governance, and capital structure adjustments: A comparative study of listed firms in Sri Lanka and India. IIMB management review 3 (2), 58-63. |
| [22] | Chen, J. J. (2014). Determinants of capital structure of Chinese-listed companies. Journal of Business Research, 57 (12), 1341-1351. |
| [23] | Cline, William R. (2015). Testing the Modigliani-Miller Theorem of Capital Structure Irrelevance for Banks. Peterson Institute for International Economics Working Paper No. 15-8. https://ssrn.com/abstract=2594025 or http://dx.doi.org/10.2139/ssrn.2594025 |
| [24] | Dănăcică, D. (2017). Methodological and applicative problems of using the Pearson correlation coefficient in the analysis of socio-economic variables. Romanian Statistical Review Supplement, 65 (2), 148-163. |
| [25] | Donaldson, G. (1961), Corporate Debt Capacity: A Study of Corporate Debt Policy and Determination of Corporate Debt Capacity, Harvard Graduate School of Management, Boston, MA. |
| [26] | Ebaid, E. I. (2009). The impact of capital-structure choice on firm performance: empirical evidence from Egypt. The Journal of Risk Finance, 10 (5), 477-487. |
| [27] | El-Chaarani, H. (2014). The Impact of Financial Structure on the Performance of European Listed Firms. European Research Studies, 17 (3), 103-114. |
| [28] | Fama, E. F., & French, K. R. (2002). Testing trade-off and pecking order predictions about dividends and debt. The review of financial studies, 15 (1), 1-33. |
| [29] | Flannery, M. J., & Rangan, K. P. (2006). Partial adjustment toward target capital structures. Journal of financial economics, 79 (3), 469-506. |
| [30] | Fosberg, R. H. (2013). Short-term debt financing during the financial crisis. International journal of business and social science, 4 (8), 45-57. |
| [31] | Frank, M. Z., & Goyal, V. K. (2007). Corporate leverage: How much do managers really matter? Available at SSRN 971082. |
| [32] | García-Teruel, P. J., & Martínez-Solano, P. (2007). Short-term debt in Spanish SMEs. International Small Business Journal, 25 (6), 579-602. |
| [33] | García‐Teruel, P. J., & Martínez‐Solano, P. (2008). On the determinants of SME cash holdings: Evidence from Spain. Journal of Business Finance & Accounting, 35 (2), 127-149. |
| [34] | Githire, C., & Muturi, W. (2015). Effects of capital structure on the financial performance of firms in Kenya: Evidence from firms listed at the Nairobi securities exchange. International Journal of Economics, Commerce and Management, 3 (4), 1-13. |
| [35] | Habib, H., Khan, F., & Wazir, M. (2016). Impact of Debt on Profitability of Firms: Evidence from Non-Financial Sector of Pakistan. City University Research Journal, Volume 06, Number 01, January 2016. Available at SSRN: https://ssrn.com/abstract=2714461 |
| [36] | Hawkins, D. G., Lake, D. A., Nielson, D. L., & Tierney, M. J. (2006). A delegation under anarchy: states, international organizations, and principal-agent theory. Delegation and agency in international organizations, 3 (8), 21-36. |
| [37] | Hovakimian, A. (2006). Are observed capital structures determined by equity market timing? Journal of Financial and Quantitative analysis, 17 (9), 221-243. |
| [38] | Huang, R., & Ritter, J. R. (2005). Testing the market timing theory of capital structure. Journal of Financial and Quantitative Analysis, 48 (2), 221-246. |
| [39] | Ishaya, L. C., & Abduljeleel, B. O. (2014). Capital Structure and Profitability of Nigerian Quoted: The Agency Cost Theory Perspective. American International Journal of Social Science, 3 (1), 139-140. |
| [40] | Isola, W. A., & Akanni, L. O. (2015). Corporate Financial Structure of Nonfinancial Quoted Companies in Nigeria. Managing Global Transitions, 13 (3), 267-281. |
| [41] | Jahanzeb, A. Saif-Ur-Rehman; Norkhairul Hafiz Bajuri; Meisam Karami, Aiyoub Ahmadimousaabad, 2014. Trade-Off Theory, Pecking Order Theory and Market Timing Theory: A Comprehensive Review of Capital Structure Theories. International Journal of Management and Commerce Innovations, 1 (5), 11-18. |
| [42] | Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3 (4), 305 - 360. |
| [43] | Jessen, F., Amariglio, R. E., Van Boxtel, M., Breteler, M., Ceccaldi, M., Chételat, G., & Glodzik, L. (2014). A conceptual framework for research on subjective cognitive decline in preclinical Alzheimer's disease. Alzheimer's & dementia: the journal of the Alzheimer's Association, 10 (6), 844-852. |
| [44] | Kraaijenbrink, J., & Spender, J. C. (2011, November). Theories of the firm and their value creation assumptions. In Annual International Conference of the Strategic Management Society (pp. 6-9). |
| [45] | Leary, M. T., & Roberts, M. R. (2005). Do firms rebalance their capital structures? The journal of finance, 60 (6), 2575-2619. |
| [46] | Leland, H. E. (1998). Agency costs, risk management, and capital structure. The Journal of Finance, 53 (4), 1213-1243. |
| [47] | Liaqat, I., Saddique, S., Bagh, T., Khan, M. A., Naseer, M. M., & Khan, M. A. (2017). Capital structure as driving force of financial performance: a case of energy and fuel sector of Pakistan. International Journal of Accounting and Financial Reporting, 7 (1), 86-101. |
| [48] | Lixin, X., & Lin, C. (2008). The relationship between debt financing and market value of the company: an empirical study of listed real estate company of China. In 7th international conference on innovation & management, China. |
| [49] | Luigi, P., & Sorin, V. (2009). A review of the capital structure theories. Annals of Faculty of Economics, 3 (1), 315-320. |
| [50] | Menike, M. G. P. D., & Prabath, U. S. (2014). The impact of accounting variables on stock price: evidence from the Colombo Stock Exchange, Sri Lanka. International Journal of Business and Management, 9 (5), 125. |
| [51] | Miller, M. H. (1988). The Modigliani-Miller proposition after thirty years. Journal of Economic Perspectives, 2 (4), 99-120. |
| [52] | Modigliani, F. & Miller, M., (1958). The cost of capital, corporation finance, and the theory of investment. The American Economic Review, 48 (3), 261 - 297. |
| [53] | Modigliani, F. and Miller, M. (1963). Corporate income taxes and the cost of capital: a correction. American Economic Review, 53 (3), 443-453. |
| [54] | Mohammadzadeh, M., Rahimi, F., Rahimi, F., Aarabi, S. M., & Salamzadeh, J. (2013). The effect of capital structure on the profitability of pharmaceutical companies in the case of Iran. Iranian journal of pharmaceutical research: IJPR, 12 (3), 573. |
| [55] | Mostafa, H. T., & Boregowda, S. (2014). A brief review of capital structure theories. Research Journal of Recent Sciences, ISSN, 2277, 2502. |
| [56] | Muchiri, M. J., Muturi, W. M., & Ngumi, P. M. (2016). Relationship between Financial Structure and Financial Performance of Firms Listed at East Africa Securities Exchanges. Journal of Emerging Issues in Economics, Finance, and Banking, 7 (5), 1734-1755. |
| [57] | Mwangi, L. W., Muathe, S. M. A., & Kosimbei, G. K. (2014). Relationship between capital structure and performance of non-financial companies listed in the Nairobi Securities Exchange, Kenya. |
| [58] | Myers, S. C. (1984). Capital structure puzzle. |
| [59] | Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have (No. w1396). National Bureau of Economic Research. |
| [60] | Nassar, S. (2016). The impact of capital structure on the financial performance of the firms: Evidence from Borsa Istanbul. Journal of Business & Financial Affairs, 5 (2), 01-04. |
| [61] | Njuguna, V. N., Kwasira, J., & Orwa, G. (2018). Influence of product diversification strategy on performance of non-financial firms listed at the Nairobi Securities Exchange, Kenya. International Journal of Economics, Commerce and Management, 6 (6), 60-83. |
| [62] | NSE report (2016). NSE Annual Report 2016 - Nairobi Securities Exchange. Available at www.nse.co.ke. |
| [63] | NSE report (2017). NSE Annual Report 2017 - Nairobi Securities Exchange. Available at www.nse.co.ke. |
| [64] | Oladele, A. J., & Olagunju, A. (2013). Determinants of capital structure in Nigeria. International Journal of Innovation and Applied Studies, 3 (4), 999-1005. |
| [65] | Oladele, S. A., Omotosho, O., & Adeniyi, S. D. (2017). Effect of capital structure on the performance of Nigerian listed manufacturing firms. European Journal of Business and Management, 9 (7), 22-32. |
| [66] | Olakunle, A. O., & Oni, E. O. (2014). Assessing the impact of asset tangibility on capital structure: choice for listed firms in Nigeria. Journal of Applied Economics and Business, 2 (3), 5-20. |
| [67] | Oma, M., D & Memba, F., S. (2018). The Effect of Share Capital Finance on Profitability of Petroleum Marketing Firms in Kenya, International Journal of Economics, Commerce and Management, 6 (1), 410-422. |
| [68] | Omai, M., D., Memba, F., S., & Njeru, A., G. (2018). The Effect of Share Capital Finance on Profitability of Petroleum Marketing Firms in Kenya. International Journal of Economics, Commerce and Management, 6 (1), 410-422. |
| [69] | Onaolapo, A. A., & Kajola, S. O. (2010). Capital Structure and Firm Performance: Evidence from Nigeria. European Journal of Economics, Finance and Administrative Sciences, 25 (7), 70-82. |
| [70] | Ongore, V. O., & Kusa, G. B. (2013). Determinants of financial performance of commercial banks in Kenya. International Journal of Economics and Financial Issues, 3 (1), 237-249. |
| [71] | Opungu, J. A. (2016). The Effect of Capital Structure on Profitability of Non-Financial Firms Listed at Nairobi Security Exchange (Doctoral dissertation, KCA University). |
| [72] | Penrose, E. T. (1959). The theory of the growth of the firm. New York: Sharpe. |
| [73] | Penrose, E. T., & Pitelis, C. (Eds.). (2002). The growth of the firm: the legacy of Edith Penrose. Oxford University Press on Demand. |
| [74] | Penrose, E., & Penrose, E. T. (2009). The Theory of the Growth of the Firm. Oxford university press. |
| [75] | Pouraghajan, A., Malekian, E., Emamgholipour, M., Lotfollahpour, V., & Bagheri, M. M. (2012). The relationship between capital structure and firm performance evaluation measures: Evidence from the Tehran Stock Exchange. International Journal of Business and Commerce, 1 (9), 166-181. |
| [76] | Pouraghajan, A., Mansourinia, E., Bagheri, S. M. B., Emamgholipour, M., & Emamgholipour, B. (2013). Investigation of the effect of financial ratios, operating cash flows, and firm size on earnings per share: evidence from the Tehran stock exchange. International research journal of applied and basic sciences, 4 (5), 1026-1033. |
| [77] | Rajan, R. G., & Zingales, L. (1998). Power in a Theory of the Firm. The Quarterly Journal of Economics, 113 (2), 387-432. |
| [78] | Salawu, R. O., & Agboola, A. A. (2008). The Determinants of Capital Structure of Large Non-Financial Listed Firms in Nigeria. International Journal of Business and Finance Research 2 (2), 75-84. |
| [79] | San, O. T., & Heng, T. B. (2011). Capital structure and corporate performance of Malaysian construction sector. International Journal of Humanities and Social Science, 1 (2), 28-36. |
| [80] | Seifert, B., & Gonenc, H. (2010). Pecking order behavior in emerging markets. Journal of International Financial Management & Accounting, 21 (1), 1-31. |
| [81] | Serrasqueiro, Z., & Caetano, A. (2015). Trade-Off Theory versus Pecking Order Theory: capital structure decisions in a peripheral region of Portugal. Journal of Business Economics and Management, 16 (2), 445-466. |
| [82] | Shahar, W. S. S., Shahar, W. S. S., Bahari, N. F., Ahmad, N. W., Fisal, S., & Rafdi, N. J. (2015). A review of capital structure theories: Trade-off theory, pecking order theory, and market timing theory. In Proceeding of the 2nd International Conference on Management and Muamalah, 16th-17th November, e-ISBN (pp. 978-967). |
| [83] | Shubita, M. F., & Alsawalhah, J. F. (2012). The Relationship between Capital Structure and Profitability. International Journal of Business and Social Science, 3 (16), 33-44. |
| [84] | Tsoy, L., & Heshmati, A. (2017). Impact of Financial Crises on Dynamics of Capital Structure: Evidence from Korean Listed Companies. IZA Discussion Paper No. 10554. Available at SSRN: https://ssrn.com/abstract=2923637. |
| [85] | Vătavu, S. (2015). The impact of capital structure on financial performance in Romanian listed companies. Procedia Economics and Finance, 32, 1314-1322. |
| [86] | Wafa, A. (2017). Financial Structure and Performance: Evidence from Technology Companies in US Stock Exchange Markets. Unpublished Thesis, Eastern Mediterranean University EMU. |
| [87] | Wesa, E. W., & Otinga, H. N. (2018). Determinants of financial distress among listed firms at the Nairobi securities exchange, Kenya. Strategic Journal of Business and Change Management, 9492, 1056-1073. |
| [88] | Yinusa, O. G., Russell, O., Somoye, C., Alimi, O. Y. & Ilo, B. M. (2016). Firm performance and capital structure choice of firms: Evidence from Nigeria. Journal of Knowledge Globalization, 9 (1), 1-16. |
| [89] | Younus, S., Ishfaq, K., Usman, M., & Azeem, M. (2014). Capital structure and financial performance: Evidence from Sugar industry in Karachi Stock Exchange Pakistan. International Journal of Academic Research in Accounting, Finance and Management Sciences, 4 (4), 272-279. |
| [90] | Yuliza, A. (2018). The Effects of Earnings Per Share and Firm Size to Stock Price LQ45 Company Listed in Indonesian Securities, International Journal of Engineering & Technology, 7 (4.9), 247-249. |
| [91] | Zurigat, Z. (2009). Pecking order theory, trade-off theory and determinants of capital structure: empirical evidence from Jordan (Doctoral dissertation, Heriot-Watt University). |
APA Style
David Haritone Shikumo, Oluoch Oluoch, Joshua Matanda Wepukhulu. (2023). Financial Structure, Firm Size and Financial Growth of Non-Financial Firms Listed at the Nairobi Securities Exchange. Journal of Finance and Accounting, 11(1), 12-25. https://doi.org/10.11648/j.jfa.20231101.12
ACS Style
David Haritone Shikumo; Oluoch Oluoch; Joshua Matanda Wepukhulu. Financial Structure, Firm Size and Financial Growth of Non-Financial Firms Listed at the Nairobi Securities Exchange. J. Finance Account. 2023, 11(1), 12-25. doi: 10.11648/j.jfa.20231101.12
AMA Style
David Haritone Shikumo, Oluoch Oluoch, Joshua Matanda Wepukhulu. Financial Structure, Firm Size and Financial Growth of Non-Financial Firms Listed at the Nairobi Securities Exchange. J Finance Account. 2023;11(1):12-25. doi: 10.11648/j.jfa.20231101.12
Share This Article
Twitter
Linked In
Facebook
Copy
Download@article{10.11648/j.jfa.20231101.12,
author = {David Haritone Shikumo and Oluoch Oluoch and Joshua Matanda Wepukhulu},
title = {Financial Structure, Firm Size and Financial Growth of Non-Financial Firms Listed at the Nairobi Securities Exchange},
journal = {Journal of Finance and Accounting},
volume = {11},
number = {1},
pages = {12-25},
doi = {10.11648/j.jfa.20231101.12},
url = {https://doi.org/10.11648/j.jfa.20231101.12},
eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20231101.12},
abstract = {A significant number of the non-financial firms listed at the Nairobi Securities Exchange (NSE) have been experiencing declining financial performance and financial growth, which deter investors from investing in such firms. Hence, the study aimed at establishing the effect of financial structure on the financial growth of non-financial firms listed at the NSE. The study was guided by the Modigliani-Miller theory, Agency Theory, Pecking Order Theory, Trade-off Theory, Market Timing Theory, and Theory of Growth of the Firm. An explanatory research design was adopted. The study’s target population comprised 45 non-financial firms listed at the NSE for a period of ten years, from 2008 to 2017. The panel model revealed that short-term debt, long-term debt, retained earnings, and share capital explain 61.36% of variations in financial growth as measured by growth in earnings per share and 65.57% of variations in financial growth as measured by growth in market capitalization. Short-term debt has a positive and significant effect on financial growth as measured by growth in earnings per share (β=0.024095, p=0.013) and growth in market capitalization (β=0.028529, p=0.006). Long-term debt has a positive and significant effect on financial growth as measured by growth in earnings per share (β=0.864088, p=0.000) and growth in market capitalization (β=0.958656, p=0.000). Retained earnings have a positive and significant effect on financial growth as measured by growth in earnings per share (β=0.951749, p=0.015) and growth in market capitalization (β=0.043784, p=0.004). Further, share capital has a positive and significant effect on financial growth as measured by growth in earnings per share (β=0.007016, p=0.000) and growth in market capitalization (β=0.09635, p=0.001). Firm size significantly intervenes in the effect of financial structure on the financial growth of non-financial firms listed at the NSE measured using growth in earnings per share. However, Firm size does not intervene in the effect of financial structure on the financial growth of non-financial firms listed at the NSE measured using growth in market capitalization. The study concludes that short-term debt, long-term debt, retained earnings, and share capital positively influence financial growth as measured by both growth in earnings per share and growth in market capitalization. The study recommends that the management of non-financial firms listed at the NSE to balance financing a firm using debt and equity. The study also recommends that the management of non-financial firms listed at NSE to encourage its shareholders to re-invest back their earnings rather than consuming them as dividends. Financial structure varies significantly depending on the sector in which a firm operates. There is a need to conduct a comparison study to establish the effect of financial structure on the financial growth of non-financial firms versus financial firms listed at the NSE. The comparison study will tell which form of financing is appropriate for non-financial firms and which one is appropriate for financial firms.},
year = {2023}
}
TY - JOUR T1 - Financial Structure, Firm Size and Financial Growth of Non-Financial Firms Listed at the Nairobi Securities Exchange AU - David Haritone Shikumo AU - Oluoch Oluoch AU - Joshua Matanda Wepukhulu Y1 - 2023/01/30 PY - 2023 N1 - https://doi.org/10.11648/j.jfa.20231101.12 DO - 10.11648/j.jfa.20231101.12 T2 - Journal of Finance and Accounting JF - Journal of Finance and Accounting JO - Journal of Finance and Accounting SP - 12 EP - 25 PB - Science Publishing Group SN - 2330-7323 UR - https://doi.org/10.11648/j.jfa.20231101.12 AB - A significant number of the non-financial firms listed at the Nairobi Securities Exchange (NSE) have been experiencing declining financial performance and financial growth, which deter investors from investing in such firms. Hence, the study aimed at establishing the effect of financial structure on the financial growth of non-financial firms listed at the NSE. The study was guided by the Modigliani-Miller theory, Agency Theory, Pecking Order Theory, Trade-off Theory, Market Timing Theory, and Theory of Growth of the Firm. An explanatory research design was adopted. The study’s target population comprised 45 non-financial firms listed at the NSE for a period of ten years, from 2008 to 2017. The panel model revealed that short-term debt, long-term debt, retained earnings, and share capital explain 61.36% of variations in financial growth as measured by growth in earnings per share and 65.57% of variations in financial growth as measured by growth in market capitalization. Short-term debt has a positive and significant effect on financial growth as measured by growth in earnings per share (β=0.024095, p=0.013) and growth in market capitalization (β=0.028529, p=0.006). Long-term debt has a positive and significant effect on financial growth as measured by growth in earnings per share (β=0.864088, p=0.000) and growth in market capitalization (β=0.958656, p=0.000). Retained earnings have a positive and significant effect on financial growth as measured by growth in earnings per share (β=0.951749, p=0.015) and growth in market capitalization (β=0.043784, p=0.004). Further, share capital has a positive and significant effect on financial growth as measured by growth in earnings per share (β=0.007016, p=0.000) and growth in market capitalization (β=0.09635, p=0.001). Firm size significantly intervenes in the effect of financial structure on the financial growth of non-financial firms listed at the NSE measured using growth in earnings per share. However, Firm size does not intervene in the effect of financial structure on the financial growth of non-financial firms listed at the NSE measured using growth in market capitalization. The study concludes that short-term debt, long-term debt, retained earnings, and share capital positively influence financial growth as measured by both growth in earnings per share and growth in market capitalization. The study recommends that the management of non-financial firms listed at the NSE to balance financing a firm using debt and equity. The study also recommends that the management of non-financial firms listed at NSE to encourage its shareholders to re-invest back their earnings rather than consuming them as dividends. Financial structure varies significantly depending on the sector in which a firm operates. There is a need to conduct a comparison study to establish the effect of financial structure on the financial growth of non-financial firms versus financial firms listed at the NSE. The comparison study will tell which form of financing is appropriate for non-financial firms and which one is appropriate for financial firms. VL - 11 IS - 1 ER -
Information
Email: