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

Abstract

As industries expand and evolve, fresh possibilities emerge, resulting in 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 data was amassed from the years 2018 to 2022. The research initially aimed to amass data from 32 agricultural enterprises that were shortlisted in KEPSA and NSE; nevertheless, data was effectively acquired from 30 of these businesses. The data accumulated 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 researcher recommended 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.