Financial Leverage and Market Return of Manufacturing Firms Listed at Nairobi Securities Exchange, Kenya

Abstract

The study's objective was to establish the financial leverage effect on Market Returns of manufacturing companies listed at the Nairobi Securities Exchange. The study employed a descriptive design. The study targeted 8 listed manufacturing firms at the NSE. The sample size was 8 listed manufacturing firms listed at the NSE hence there was no sampling. Secondary data was collected for duration of 5 years (2018 to 2022) annually. In data analysis, both descriptive and inferential statistics was conducted. STATA 15 was employed for the data analysis purposes. The results were presented using charts, figures and tables as well as models. The results indicated that debt intensity level, interest obligation and asset tangibility have significant negative effect on market returns of listed manufacturing firms. However, equity structure has significant positive effect on market returns of listed manufacturing firms. The study concluded that financial leverage have mixed significant effect on market return of listed manufacturing firms at NSE. The study therefore recommended that firms should use debt financing especially when the funds would be used to increase asset utilization. That is, firms should only borrow funds if the funds would be used to increase utilization of existing assets. This study recommended that management of listed manufacturing firms should control the amount of interest expense since an increase in interest expense has an effect in that it reduces the market returns. A firm should aim at increasing shareholders wealth through increasing percentage of retained earnings as compared to percentage of dividends payout.