Effect of Asset Structure on Value of a Firm: a Case of Companies Listed In Nairobi Securities Exchange

Abstract

The decisions on the most suitable financing method to be used by companies and to what levels have been a great puzzle to many financial experts and academicians forming the subject of discussion in many fields of finance. This research sought to establish the effect of capital structure on value of the firm through the determinant of asset structure. The assets form the basis through which financiers have the confidence to lend to an entity because it guarantees them recovery of their capital. It is this funds that enable the firm to acquire more and improve the level of their efficiency. This translates ultimately to increased profit for the firm. The findings confirmed that the asset structure determines the firm’s value to a high extent. Firms did not seem to consider appropriately all elements before making decisions on the composition and alteration of their capital structures thus affecting their values negatively. Management of companies should initiate regular capital structure monitoring and control mechanisms to ensure that any change made adds value to their firms in the long run.

Keywords: Assets structure; Value of Firm, Capital Structure, Market Price, Profitability