The Moderating Effect of Firm Size on the Relationship Between Capital Structure and Financial Distress of Non-Financial Companies Listed in Kenya
Journal of Finance and Accounting
Volume 5, Issue 4, July 2017, Pages: 151-158
Received: Apr. 28, 2017; Accepted: May 10, 2017; Published: Jun. 23, 2017
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Authors
Robert Gitau Muigai, Department of Finance and Accounting, School of Business and Economics, Kirinyaga University, Nairobi, Kenya
Jane Gathigia Muriithi, Department of Economics, Accounting and Finance, School of Business, Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
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Abstract
This paper sought to establish the moderating effect of firm size on the relationship between capital structure and financial distress of listed non-financial firms in Kenya. Firm size was measured using the natural logarithm of total assets while capital structure was operationalized by total debt, long-term debt and short term debt financing. The degree of financial distress was measured using the Altman’s Z-score index as reviewed for the emerging markets. Secondary data from audited and published financial statements was collected on the 40 listed non-financial firms between year 2006 and 2015. The study estimated the specified panel regression model for fixed effects as supported by the Hausman test results. Feasible Generalized Least Squares (FGLS) regression results revealed that firm size has a significant moderating effect on the relationship between capital structure and financial distress of non-financial firms. Specifically, the study found that although generally debt has a negative and significant effect on financial distress of the studied companies, this effect becomes positive and significant as the size of the firm increases. The study further found that use of long term debt has a positive and significant effect among large-scale firms while short term debt is significantly detrimental. On the basis of these empirical findings, the study recommended that managers of listed non-financial companies should always consider the size of the firm in making leverage choice decisions for their entities.
Keywords
Capital Structure, Financial Distress, Firm Size
To cite this article
Robert Gitau Muigai, Jane Gathigia Muriithi, The Moderating Effect of Firm Size on the Relationship Between Capital Structure and Financial Distress of Non-Financial Companies Listed in Kenya, Journal of Finance and Accounting. Vol. 5, No. 4, 2017, pp. 151-158. doi: 10.11648/j.jfa.20170504.15
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Copyright © 2017 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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