Capital Structure on the Cost of Capital of Firms Listed at the Nairobi Securities Exchange, Kenya

Nicodemus, Kitukutha Mutinda; Wamugo, Lucy

doi:10.47604/ijfa.260

Cited by 2 publications

(1 citation statement)

References 5 publications

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“…Zhou et al (2016) focused their research on the sensitivity of the cost of equity to leverage deviation and their results confirm theoretical predictions that the cost of equity is positively related to leverage deviation. Nicodemus (2017) revealed that the relationship between capital structure and total costs of capital is determined by an increase when the debt ratio increases in the capital structure (considering specific industry sectors). A sample of 41 enterprises was selected for the study and a simple correlation was used to measure the relationship between the two variables.…”

Section: Literature Reviewmentioning

confidence: 99%

How Capital Structure Affects Business Valuation: A Case Study of Slovakia

Valášková¹,

Lăzăroiu²,

Oláh³

et al. 2019

CEBR

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A company's capital structure is a significant factor in valuing its business. The relative levels of equity and debt affect risk and cash flow and, therefore, the amount an investor would be willing to pay for the company or an interest in it. Capital structure matters because it influences the cost of capital. Therefore, this paper aims to quantify the effect of the capital structure on the cost of capital of Slovak enterprises and to suggest an effective way of financial decision-making. The data used in the study was gained from the Bratislava Stock Exchange because publicly available information on enterprises issuing their shares on the stock exchange was needed to calculate the cost of capital. Due to the underdeveloped capital market of Slovakia, we chose 17 stock companies (except for commercial banks) operating on the Slovak market having all the data required. The financial data of companies were obtained from their financial statements spanning 2013 to 2017. The impact of the capital structure on the cost of capital was investigated by the Pearson correlation coefficient, regression analysis and Mann-Whitney U-test. The study found that there is an indirect relationship between the capital structure, the cost of capital and the size of the company. We also conclude that the growing volume of debt may result in a decline in the corporate costs of capital. These findings concerning Slovak enterprises incline to the respected compromise theory.

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Section: Literature Reviewmentioning

confidence: 99%

How Capital Structure Affects Business Valuation: A Case Study of Slovakia

Valášková¹,

Lăzăroiu²,

Oláh³

et al. 2019

CEBR

View full text Add to dashboard Cite

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The link between debt finance and profitability in the emerging market: A case study of a furniture retail company

Nyamwanza

Haufiku

Ellen

et al. 2020

RGC

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The objective of this research was to establish the impact of debt finance on the profitability of a firm using A furniture retail company (pseudo name “A”) as a case study. The mixed methods approach was employed quantitative data from financial statements and qualitative data from interviews. The target population was 25, hence the researchers used a population census, 24 participants assisted in the research. The statistical method used for analysing secondary data was STATA 11. The regression model and variables incorporated were debt ratio, which was the independent variable, and the return on asset ratio, which was the dependent variable, and the measure of profitability in this particular research. Main findings from the research indicated that debt financing was significantly and statistically negatively affecting the return on assets of the company. The regression yielded a p-value of 0.018 and a coefficient of 0.9992 thus confirming a 99.92% that the variability in profitability is well explained by the independent variable used in this research which is debt finance. The study recommends companies to carry out an in-depth cost-benefit analysis of debt financing to ensure optimum profitability especially for small and private limited companies in a volatile economy (Zimbabwe).

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Capital Structure on the Cost of Capital of Firms Listed at the Nairobi Securities Exchange, Kenya

Cited by 2 publications

References 5 publications

How Capital Structure Affects Business Valuation: A Case Study of Slovakia

How Capital Structure Affects Business Valuation: A Case Study of Slovakia

The link between debt finance and profitability in the emerging market: A case study of a furniture retail company

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