Effect of Capital Structure on Financial Performance of Agriultural Firms in Kenya

Abstract

As corporate entities expand and evolve, fresh possibilities emerge that present an opportunity and a potential of economic expansion and enhanced financial outcomes for companies. Consequently, the financial framework of a company plays a pivotal role in determining how it secures the necessary funds to sustain its operations and investments. The objective of the study was to determine effect of Capital Structure on Financial Performance of Agricultural Firms in Kenya. The period of the study takes a timespan of five years, ranging from 2018 to 2022, which encompasses the pre- and post-global pandemic crisis period, facilitating an investigation into how agricultural firms have adjusted and navigated economic conditions following the worldwide COVID 19 Pandemic. The research initially aimed to obtain data from 32 agricultural enterprises that were shortlisted by KEPSA and NSE. However, data was collected from 30 businesses in the sector. The data collected underwent a systematic and consistent examination, encoding, and summarization process driven by SPSS computation. The researcher employed the non-standardized coefficients in column B to formulate the mathematical model. Subsequently, the data underscores that, while maintaining all other variables constant, the influence of the predictor variables on financial performance totals 0.299. Furthermore, the discoveries disclose that liquidity has a positive yet statistically non-significant impact on agricultural financial performance (β=0.003; p=0.562> 0.05). In addition, a thorough investigation exposes the intricate effect of the capital structure on agricultural firm’s financial performance, unveiling a substantial positive connection (β=0.086; p=0.000< 0.05). Furthermore, as the analysis progressed, the focus shifted to the impact of asset growth on business performance. The outcomes solidly ascertain an unfavorable yet noteworthy relationship (β=-0.135; p=0.000< 0.05). The association between agricultural firm’s size and financial performance was scrutinized, revealing an unfavorable yet statistically substantial relationship (β=-0.001; p=0.000<0.05). The researchers recommend that agricultural firms should optimize their financial performance for comprehensive stability. The research advocates for continual surveillance and assessment of financial factors, in conjunction with judicious financial structure management, liquidity oversight, and growth strategy appraisal, as being imperative for their financial triumph. Policymakers and financial specialists should also heed these findings when formulating policies and offering counsel to the agricultural sector.

Keywords: Capital Structure, Financial framework, financial performance, Agricultural Firms in Kenya