Financial Structure and Market Performance of Non-financial Firms Listed at the Nairobi Securities Exchange

Abstract

The determination of the optimum financial structure of a firm plays a critical role in ascertaining the appropriate amount of funds to be borrowed and the ideal combination of debt and equity for the purpose of financing business operations. The optimal financial structure for a corporation is possessing a robust financial base that enables the organization to capitalize on development prospects while upholding financial equilibrium. Nevertheless, the process of making finance choices is complex and might differ across businesses. The primary study aim was to assess the impact of financial structure on the market performance of non-financial companies listed at NSE. The primary aims of this study were to evaluate the impact of long-term debt on the market performance of non-financial companies listed on the NSE, analyze the effect of short-term debt on market performance, investigate the influence of share capital on market performance, and assess the impact of retained earnings on market performance of firms listed on the NSE. The research study used a descriptive research approach and relied on secondary data. The research used the utilization of secondary data, namely panel data. The temporal range of the investigation spanned from 2018 to 2022. The research included many statistical tests, including Multicollinearity, Heteroscedasticity, Normality test, Autocorrelation Test, and Hausman Test. The findings of the regression analysis showed that there exists a positive correlation between Long Term Debt, Short Term Debt, Retained Earnings and Share Capital, and the market performance of non-financial enterprises listed on the NSE. Furthermore, the observed statistical significance, as shown by the low p-values, implies that these linkages have a substantial impact on market performance. The research findings indicate that the market performance of firms listed on the NSE is positively influenced by short-term and long-term debt, share capital, and retained profits. The observed associations exhibited statistical significance, hence resulting in the rejection of the null hypotheses pertaining to each goal. The report proposes that non-financial enterprises listed on the NSE should consider using short-term debt as a strategy to enhance market performance, while concurrently exercising caution in controlling their debt levels. When considering long-term debt, it is advisable to adopt a prudent approach and seek guidance from professionals, given its relatively modest but nonetheless favorable influence. It is highly recommended to augment the share capital in order to bolster market attractiveness and attract a diverse spectrum of investors. Finally, it is recommended to accumulate larger retained profits as a means of communicating both financial stability and capacity for growth.