Corporate diversification strategy, product Uniqueness, environmental dynamism and choice of Capital structure for firms listed at Nairobi stock Exchange

Abstract

This study focuses on the determinants of capital structure for firms listed at the Nairobi Stock Exchange. The objective of the study is to establish the relationship between capital structure, corporate diversification strategy, products umqueness and environmental dynamism. The study used 21 firms listed at the Nairobi Stock Exchange for the period between 1999 and 2008. It has been predicted that leverage is positively related with diversification strategy, negatively related with product uniqueness and dynamic environment (Kochhar and Hitt, 1998); Titman and Wessels, 1988 and Simerly and Li, 2000). Using market analysis, this study found consistency on diversification strategy and product uniqueness with prediction but they have not been found to be significant determinants of capital structure for firms listed at NSE. Environmental dynamism has no effect. This implies there are other important factors that influence decisions of listed firms while sourcing finances by the listed firms. Analysis by sector however reveals inconsistencies with predictions but show that diversification strategy and product uniqueness are important determinants of capital structure for all sectors (agricultural, commercial, Industrial and allied). Environmental dynamism nevertheless does not influence choice of capital structure for firms listed at NSE. On conclusion, for firms listed at the Nairobi Stock Exchange, corporate diversification strategy and product uniqueness partly influence choice t1f capital structure as predicted by explanatory variables and partly for other reasons. Environmental dynamism does not influence choice of capital structure for firms listed at NSE