Effect of Capital Structure on Financial Performance: Evidence from Companies Listed on the Lusaka Securities Exchange (Luse)

Chiluwa Hannyama, Martin Kabwe and Temwani Zulu
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Chiluwa Hannyama: Graduate School of Business, University of Zambia.
Martin Kabwe: University of Zambia, Directorate of Research and Graduate Studies, Great East Road Campus, P.O Box 32379, Lusaka, Zambia.
Temwani Zulu: Ministry of Education, Zimba. Zambia

International Journal of Research and Innovation in Social Science, 2025, vol. 9, issue 5, 485-511

Abstract: This study investigates the impact of capital structure on the financial performance of firms listed on the Lusaka Stock Exchange (LuSE). The study sample comprised 16 non-financial firms listed on the LuSE. Secondary data were collected from the audited financial statements available on the company websites and the LuSE, covering the period from 2014 to 2022. Statistical analysis was conducted using correlation and regression analysis with the aid of Statistical Package for Social Sciences (SPSS) and STATA. The study found a positive correlation of 0.0965 between capital structure and financial performance. Regression analysis revealed a right-skewed distribution of debt and assets, and a normal distribution for the debt-asset ratio. In terms of financial performance, net and operating profit showed normal distribution, while return on assets (ROA) was fairly uniform across the listed companies. Return on Capital Employed (ROCE) exhibited an outlier and a positively skewed distribution, indicating a lower ROCE. The study also observed that the capital structure of non-financial companies listed on the LuSE was more inclined towards assets than debt. Negative correlations were found between equity and the debt-asset ratio, as well as between the debt-asset ratio and ROCE. Descriptive statistics, correlation, and regression methods revealed that both short-term and long-term debt had no significant impact on the financial performance of the firms. The study recommends that firms should aim to find an optimal balance in their capital structure to ensure sustained performance.

Date: 2025
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