Abstract: Capital structure is an important management decision as it greatly influences the owners‟ equity return, the owners‟ risks as well as the market value of the shares. The main objective of this research study was to establish the influence of firm specific factors on capital structure of listed manufacturing and allied firms in the NSE. Specifically, the study sought to establish whether and the extent to which tangibility of assets, profitability, firm size, and firm growth influence capital structure of listed manufacturing and allied firms in the NSE. This study was carried out through a descriptive research method. The target population for this study included all 10 firms listed in the NSE under the manufacturing & allied segment. The study used secondary data. Secondary data was gathered from published annual financial statements and reports of the manufacturing and allied companies. Data for the period of 5 years (2012-2016) was collected for this study. This study used multiple regression analysis. A regression was then run to measure the impact of the independent variables on the dependent variable. Correlation Coefficient (r) was determined and used to measure the strength of the relationship between the dependent variable (Leverage) and each of the independent variables. The results indicate that over the five years period the manufacturing and allied firms had a mean leverage of 0.59, profitability of 3.20, firm size of 0.03, asset tangibility of 1.11, and firm growth mean of 0.21. The study findings established a correlation value of 0.846. This depicts a strong linear dependence between the two variables. An R-square value of 0.776 was established and adjusted to 0.653. The coefficient of determination depicts that 77.6% of the variations in leverage can be explained by tangibility of assets (TA), profitability (P), firm size (FS), and firm growth (FG) meaning that there are other factors that influence the total leverage of the segment. This study concludes profitability, firm size, asset tangibility, and firm growth are determinants of the capital structure of manufacturing and allied industry firms in Kenya. The most influential variable is the asset tangibility, followed by firm size and firm growth. Liquidity has the least impact on leverage of the cement manufacturing firms in Kenya. Then there is need to replicate the study using many other industries in Kenya in an attempt to compare the findings. There is need to carry out a similar study with the objective of addressing financial structure of firms as opposed to capital structure. This would be worthwhile because it was noticed that a number of firms used large amounts of short term borrowing rather than long term debt.
Keywords: Firm Specific Factors, Allied Firms, tangibility of assets (TA).
Title: The Influence of Firm Specific Factors on Capital Structure: Case of Listed Manufacturing and Allied Firms in the Nairobi Securities Exchange
Author: Maina Peter Ng’ang’a, Dr. Jane Omwenga
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
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