The relationship between debt financing and the value of the firms quoted at the Nairobi stock exchange

Abstract

Many companies in Kenya rely on debt to finance their operations but many of them have been put under receivership and eventually liquidated due to inability to pay debt. There was therefore a need to establish whether there exists any relationship between debt and the value of the firm. The study sought to establish if there exists any significant relationship between debt and the value of the firms quoted at the Nairobi Stock Exchange. To achieve the above objective, regression analysis was used to establish the relationship. The relationship was found to be weak (Iess than 50%) for a large portion of individual companies as well as across sectors. T-tests were carried out to assist in accepting or rejecting the hypothesis. The study failed to reject the hypothesis that there is no significant relationship between debt and the value of the firm. This means that debt, as a source of financing does not have any significant effect on the value of the firms, quoted at the Nairobi Stock Exchange.