Financial Structure and Financial Growth of Financial Firms Listed at Nairobi Securities Exchange, Kenya

Abstract

Decline in performance deter investor from investing in firms. As such, the firms struggle to raise funds for their operations. The purpose of this study was to establish the effect of financial structure on financial growth of financial firms listed at Nairobi Securities Exchange. The study aimed to evaluate the effect of short term debt, long term debt retained earnings and share capital on financial growth as well as how they are moderated by firm size on financial firms. The theories informing the study included Modigliani-Miller theory, Trade-off Theory, Pecking Order Theory and Agency cost theory. This study was guided by the positivism philosophy and a descriptive research design. The target population of the study comprised of 21 financial firms listed at the NSE for a period of 8 years from 2010 to 2017. The findings indicated that a positive and significant relationship between short-term debt and financial growth of the financial firms. Long-term debt had a negative and insignificant relationship with financial growth of the financial firms. Retained earnings had a positive and significant relationship with financial growth of the financial firms. Share capital indicated a positive and significant relationship with financial growth of the financial firms. Firm size was found to be a significantly moderator of the relationship between the financial structure and financial growth of financial firms. The study recommends that policy makers in the financial sector to embrace indicators on short term debts, long term debts, retained earnings, the share capital and firm size on their strategic decision-making. These indicators will further guide in expanding the interpretation of the financial structures in the listed firms at the Nairobi securities exchange and other related firms. Firm size is thus crucial in a finance company due to their market power larger firms are able to charge higher prices and hence earn higher profits. Keywords: Short Term Debt, Long Term Debt, Retained Earnings, Share Capital & Financial Growth