Effect of Risk on Total Debt of Companies Listed on the Nairobi Securities Exchange, Kenya

Abstract

Despite the availability issue, debt financing continues to be an essential form of funding for businesses. Risks have been a major source of uneasiness for owners, executives, experts, as well as shareholders globally. The Kenyan enterprises have a greater susceptible to variations in currency rates in the nation’s economic climate, which is growing to become increasingly open with an increase in global trade. The study objective is to investigate the effect of risk on total debt of companies listed on Nairobi Securities Exchange. The study was underpinned by tradeoff theory and pecking order theory. The study utilized causal research design. Secondary data was used to collect data from yearly accounting statement from 2007-2011. Panel regression was used to analyze the fixed effect model. The result showed that risk negatively and substantially affects total debt. The study recommended that the management of listed firms should understand the tradeoff theory and pecking order theory. The study also recommended that risk should continually be monitored by companies to be in line with the prevailing economic conditions. This can be ensured by studying other factors trend that can affect the risk of companies.