CAPITAL STRUCTURE DECISIONS, BOARD CHARACTERISTICS AND FINANCIAL SOUNDNESS OF NON-FINANCIAL FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE

Kamau Miriam Njambi, Prof. Fredrick Kalui

Abstract


The study sought to assess capital structure, board characteristics and financial soundness of non-financial firms listed in Nairobi Securities Exchange (NSE). The specific objectives of the study were; to determine the effect of capital structure decisions on financial soundness of non-financial firms listed in Nairobi Securities Exchange, to assess the effect of board characteristics on financial soundness of non-financial firms listed in Nairobi Securities Exchange and to determine the joint effect of capital structure and board characteristics on financial soundness of non-financial firms listed in Nairobi Securities Exchange. The study was guided by Modigliani and Miller Theory and Stewardship Theory. The study adopted descriptive research design and the population of the study comprised of all non-financial companies listed in the Nairobi Securities Exchange (NSE). The proposed study target population comprise of all the 47 non-financial firms listed in NSE. The study did census survey. The study used secondary data, collected from respective non-financial firms audited annual published financial statement covering a period of 5 years that is 2017 to 2021. The information was codified and entered into a spread sheet and analyzed using SPSS (Statistical Package for Social Sciences) and analyzed using inferential statistical methods. The study concludes that equity structure and financial leverage were the main determinants of the capital structure. The study also concluded that capital structure has positive and insignificant effect on financial soundness of non-financial firms listed in Nairobi Securities Exchange. The study also concludes board characteristics have a positive significant effect on financial soundness of non-financial firms listed in Nairobi Securities Exchange. This study recommends that government should lower cost associated with borrowing by coming up with various monetary and fiscal policies due to the fact that many companies depends on external sources to fund their operations.

Keywords: Capital Structure Decisions, Board Characteristics, Financial Soundness, Non-Financial Firms


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