Capital Structure and Financial Sustainability among Investment Firms Listed at The Nairobi Security Exchange, Kenya

Abstract

The purpose of the research was to assess capital structure and financial sustainability among investment firms listed at the NSE, Kenya. The study objectives were to assess the capital structure used by investment firms listed at the NSE in Kenya, determine the level of financial sustainability of investment firms listed at the NSE in Kenya, and to find out the relationship between capital structure and financial sustainability of investment firms listed at the NSE in Kenya. This study was guided by Modigliani-Miller, Pecking Order Theory, Positive Signaling Theory, and weak Efficient Market Hypothesis (EMH). The design for the study was descriptive research design with a population of 63 companies listed on the Nairobi Securities Exchange. The target population were the five (05) investment firms listed at the NSE. The study used census research method, based on secondary data that was collected from selected investment firms’ websites between 2013 and 2022. Multiple regression analysis was conducted after diagnostic tests were conducted. The findings showed that capital structure had a positive significant relationship with the financial sustainability of investment firms as well as corporate bonds (long-term debt) had a positive significant relationship with financial sustainability of the investment firms listed at the NSE. Further, preference shares had a significant and positive relationship with financial sustainability while firm size also had a positive significant relationship with financial sustainability. In conclusion, capital structure as measured by both long-term debts (corporate bonds and preference shares) had a positive relationship with the financial sustainability (ROE) of the investment firms listed at the NSE. The study recommends that, the investment firms listed at the NSE should exhaust ROE prior to their decision to utilizing other investment forms, such as, long-term debts as well as the firms should choose a capital structure that is ideal for it (long-term debt) and a management team that can improve financial sustainability while lowering their chance of bankruptcy. The findings will be helpful to policymakers, such as the Capital Markets Authority (CMA), in establishing regulations that guarantee listed companies retain and adopt an ideal capital structure that is less vulnerable to financial problems.