Abstract: Financial distress is detrimental to big organizations and the small organizations alike. It leads to bankruptcy of firms which systematically affects both macro and micro economic fortunes of a country’s economy. Since independence, Kenya has witnessed numerous cases of financial distress among listed firms as evidenced by some firms undertaking financial restructuring and reorganization while others being placed under receivership and subsequently delisted. Firms listed at the NSE should ensure they meet certain minimum operating criteria so as to guarantee investors confidence but despite all these regulations in place it’s disturbing that these firms struggle to operate. This situation does not only lead to loss of investor’s wealth but also erodes confidence in the capital market. This study aimed at establishing the influence of financial leverage on financial distress in the context of listed firms where despite there being strict compliance and regulation rules and the reporting frameworks in place firms still struggled to operate and were faced with financial distress challenges. The specific objective of the study was to show the influence of financial leverage on financial distress of listed firms at the NSE. A descriptive survey design was adopted and the target population for the study was 65 listed firms and a census was conducted for all the listed firms. Document analysis sheet was used to collect secondary data. Data was analysed using SPSS and multiple regression showed Financial leverage (β=5.002, p- value=.031) significantly influence financial distress of listed firms at the NSE. The study concluded that financial leverage has a significant influence on financial distress and thus firms should strive to adopt moderate thresholds that will ensure payment of obligations while also ensuring maximum returns on investment. The study recommends that firms should strive to maintain an optimal debt level that will lower the cost of borrowing such that the earnings generated by debt financing are not exhausted by fixed charge payments such as interest. The regulatory authority should continuously play their vigilance roles so as to ensure investors wealth is safeguarded so as to enhance confidence in the capital markets authority.
Keywords: Failure, Financial Distress, Financial Leverage.
Title: Influence of Financial Leverage on Financial Distress among Listed Firms at the Nairobi Securities Exchange, Kenya
Author: Wesa Washipobe Esau, Dr. Otinga Nangabo Hesbon
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
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