Effect of Capital Structure on Financial Performance of Construction and Allied Firms Listed at the Nairobi Securities Exchange

Abstract

This study sought to examine the effect of capital structure on financial performance of construction and allied firms that are listed at the Nairobi Securities Exchange. A correlational research design was used and the study population involved all the construction and allied firms that were listed at the Nairobi Securities Exchange during the study period. The study relied on secondary data obtained from consolidated financial statements of the five construction listed firms. A regression analysis was performed so as to determine the nature of the relationship between the dependent and independent variables. A correlation analysis was also used so as to determine the strength of association between the variables. The study found out that capital structure affects the financial performance of listed construction firms. Capital structure was found to be weakly negatively correlated to financial performance of the firms. The study concluded that capital structure, liquidity and asset tangibility affected the financial performance of the construction and allied firms that are listed at the Nairobi securities Exchange. Liquidity and asset tangibility had a direct positive effect on the performance of the firms. The study thus recommends for proper working capital management and the need to strike a balance between financing methods by the firms since high levels of debt increases the risk of insolvency and thereby affecting firm performance