The Effect of Financial Structure on Financial Performance of Listed Commercial Banks in Kenya

Abstract

The study sought to determine the effect of financial structure on financial performance of listed commercial banks in Kenya. This research study was pegged on Modigliani and Miller theory, Pecking order theory, Compromise Theory and also Market Timing Theory. This research study employed Panel research data as well as additionally targeted all the eleven (11) listed business financial institutions in Kenya for duration of five (5) years covering in between 2015 and 2019. Demographics method was taken on in investigating all the 11 noted commercial banks in Kenya. Data extraction sheet was used for the purposes of data collection. With the help of STATA software program, data was assessed utilizing descriptive stats and also panel regression analysis. The outcomes were comprehensively presented in tables and also charts. In order to determine the appropriateness of the empirical design, the study carried out diagnostic tests specifically; multicollinearity, heteroscedasticity, autocorrelation, stationarity as well as also Hausman test. The results for generated a coefficient of 0.3594 indicating that retained earnings, short-term debts, long-term financial debts and also share capital jointly had an outcome of 35.94 percent of economic performance of listed commercial banks in Kenya as measured by return on assets. The results revealed that retained profits positively and also substantially affected financial efficiency of listed banking institutions, there was a positive though trivial association between short-term financial debt and also economic performance; it was also observed that long-term financial debt favorably as well as substantially affected economic efficiency of listed commercial banks in Kenya. Ultimately, the research established that there was a positive and significant relationship between share capital as well as financial performance of banks listed in Kenya. Based upon the findings, the research concluded that economic performance of listed commercial financial institutions in Kenya had been erratic in between the year 2015 and also 2019 in which some banks had been registering increasing return on assets as others sign up declining financial performance in terms of return on assets. The research likewise noted industrial banks in Kenya had actually been continuously recording combined results with regards to retained profits as occasionally the retained earnings were rising while in some years were decreasing throughout the five-year period of in between 2015 and also 2019. Therefore, managements of listed commercial banks in Kenya must strive to make sound and well-informed choices when it involves the economic framework they choose when it pertains to funding their operations since economic framework has considerable impact.