Perceived Relationship between Corporate Capital Structure and Firm Value in the Kenyan Listed Companies

Abstract

The purpose of this study was to establish the perceived relationship between corporate capital Structure and Firm value in the Kenyan Listed Companies. The study employed an explanatory research design. The population of the study consisted of 61 companies listed on the NSE. The sample size for this study was made up of 35 listed companies excluding the financial companies, Investment and Insurance companies due to their peculiar nature of capital structure. The study relies on Secondary data sourced from annual audited financial statement of the firms listed on Nairobi Securities Exchange. The study utilized descriptive and regression analysis to determine the relationship between corporate capital structure and firm value of the Kenyan listed companies. The study results were that companies used more debt as a source of financing its assets than equity capital. The regression results indicated that there was a positive relationship between capital structure, size of the firm, liquidity, growth opportunity and firm value. Therefore, the higher the debt to equity ratio, the higher the firm value. The unique contribution of this paper is that it reduces the lack of conclusiveness on the debate about the relationship between corporate capital structure and firms value. The study recommended the listed companies in Kenya to engage strategic investors to shore up their debt capital and also recommended that the equity share holder should be substituted for debt share holding in future. This would bring about improved firms value.

Keywords: Corporate capital Structure, Firm value, Finance, Growth Opportunity, Liquidity