Capital structure choice: views and practices of financial managers of companies listed at the Nairobi stock exchange

Abstract

This paper reports the findings of a survey of companies listed at the Nairobi Stock Exchange to learn about the managerial opinions and practices with respect to long term financing decisions. Frequency tables, mean score tabulations, and percentages to represent the response rate and information on the variables under study were the tests applied with the use of the Microsoft Excel program. Primary data was collected using structured questionnaires that were completed by the respondents. The questionnaires comprised both open and closed ended questions and was administered through the drop and pick later method. For firms located in towns away from Nairobi, the questionnaires were dispatched by way of electronic mail to the financial manager or the officer most familiar with financing procedures to answer the questions. The financial managers in this study were found to be more likely to follow a financing hierarchy than adhere to target capital structures. If confronted with new growth opportunities which would force them to deviate from the target capital structure or the financing hierarchies, most firms would go for the growth opportunity. The message conveyed by the managers of the firms is that they are likely to be much more flexible with capital decisions than with either dividend policy decisions or with the investment decisions. Still a lot needs to be done in the area of capital structure of companies in Kenya, specifically to establish the nature of capital structure of companies not quoted at the Nairobi Stock Exchange.