| dc.description.abstract | This research was carried out to assessing the capital structure and financial performance
of commercial banks listed at Nairobi Securities Exchange Kenya (NSE). The variables
investigated were; debt, equity, reserves, earnings and share capital. The study objectives
were: to determine the influence of debt on financial performance of commercial banks
listed in NSE; to examine the influence of equity on financial performance of commercial
banks listed in NSE; to assess the influence of share capital on financial performance of
commercial banks listed in NSE; to establish the influence of reserves on financial
performance of commercial banks listed in NSE; and to find out the influence of earnings
on financial performance of commercial banks listed in NSE. The study was supported by
three theories that is Modigliani and Miller Model, Pecking Order Theory and Trade-off
Theory. Additionally, a descriptive research design was employed as it focuses on
describing the state of phenomena or elements as they exist and is structured to address
specific research questions. In addition, the research was carried out at Nairobi Security
Exchange in Kenya, chosen for being the largest stock exchange across East Africa. The
research used a census survey to include all commercial banks quoted at NSE. Moreover,
the target population was 10 banks listed in NSE. Also, the sample size was comprised of
10 commercial banks. Consequently, secondary data was used and data was sourced from
published audited financial statements of banks, historical data from the NSE, and banking
supervisory annual reports from the Central Bank of Kenya, covering a period of 10 years
from 2015 to 2024. Analysis of data involved Random Effect Model Analysis (REMA)
that expressed the individual institution's intercept as a deviation from a constant mean
value. The study’s results showed that debt had a significant negative effect on financial
performance, with coefficients of -0.282 for ROA and -0.252 for ROE, both statistically
significant at the 1% level. In contrast, equity had a positive, though weaker, relationship
with financial performance. The coefficients for equity were 0.765 for ROA and 0.266 for
ROE, both significant at the 1% level. Regarding financial reserves, the analysis showed a
negative relationship with financial performance, with coefficients of -0.921 for ROA and
-0.848 for ROE, both significant at the 1% level. Finally, earnings exhibited a positive
impact on financial performance, with coefficients of 0.339 for ROA and 0.292 for ROE,
both statistically significant at the 5% level. This suggests that retained earnings, as an
internal source of funding, positively support growth and profitability. In conclusion, the
study provides valuable insights into the effects of capital structure components on
financial performance in the Kenyan banking sector. It emphasizes the importance of
managing debt and reserves carefully while fostering growth through earnings and equity.
The findings offer policy implications for financial managers and regulators, suggesting a
balanced approach to capital structure management to optimize profitability. It is
recommended that commercial banks in Kenya consider maintaining a well-balanced
capital structure, with an appropriate mix of debt, equity, and retained earnings, to enhance
profitability and long-term financial stability. | en_US |
