Financing capital investments by quoted companies in Kenya

Abstract

The Management of corporate firms is confronted with many decisions affecting the growth, profitability and survival of their organizations. Inevitably financing capital investments decisions constitute such important decisions corporate managers have to make on behalf of their companies. Managers have to decide on how to finance capital investments and usually consider various factors in making their financing decisions. The principal objective of this study was to identify how capital investments are financed by quoted companies in Kenya.The study also sought to identify the factors that the management of quoted companies consider in making their financing capital investments decisions. In order to meet these objectives, secondary data was collected from annual published results from 52 firms listed at the Nairobi Stock exchange and the relationship between capital investments and financing variables namely, internally generated funds, New Equity capital, Long-term debt and Short term debt were examined over the 1997 to 2001 period. Primary data was also collected through the use of questionnaires from the financial managers seeking information on how they finance capital investments and the factors that influence their financing capital investment decisions. Correlation analysis was used for the secondary data collected and the results revealed that capital investments were significantly positively collerated with internally generated funds among all the industry sectors of quoted companies. The correlation between capital investments and New equity, Long-term debt and Short-term revealed varied correlation's among the industry sectors in the study. The study found that many factors influence.managers in their financing capital investment decisions. Among the most important factors were stability of future cash flows, profitability of the business, level of competition in the industry, stability of future sales, and the level of interest rates in the economy