Capital structure, profitability and firm value: panel evidence of listed firms in Kenya

Odongo Kodongo, Thabang Mokoaleli-Mokoteli and Leonard Maina

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates the relationship between leverage and the financial performance of listed firm in Kenya. We use annual data for the period 2002 – 2011. Using various panel procedures, our study finds reasonably strong evidence that leverage significantly, and negatively, affects the profitability of listed firms in Kenya. However, leverage has no effect on Tobin’s Q, our proxy for firm value. Our results are robust to alternative panel specifications and hold for both small-size and large-size firms. Second, because the performance of firms depends on other things than just their capital structure, we control for the effects of those other variables by including them in our models. In this respect, our findings suggest that asset tangibility, sales growth and firm size are important determinants of profitability. Surprisingly, asset tangibility consistently has a negative relationship with profitability. For small firms, our results indicate that sales growth and firm size are important factors driving firm value (Tobin’s Q). Yet, the same variables do not appear to drive the value of large firms.

Keywords: Capital structure; leverage; firm value; profitability; Kenya (search for similar items in EconPapers)
JEL-codes: G30 G32 (search for similar items in EconPapers)
Date: 2014-04
New Economics Papers: this item is included in nep-afr, nep-bec and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/57116/1/MPRA_paper_57116.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:57116

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().