The Effects of a Firm's Capital Structure on the Risk of Common Stocks a Test of the Nse

Abstract

The risk - return trade off 1.s almost a concluded issue in finance today. Studies have shown that the higher the risk of a security, the higher the returns the investors require. However, two major questions that this research has not addressed satisfactorily are the risk preferences of the investor and the factors that determine the risk of a security. This study looks partly at the second. Among he factors thought to influence the risk of a security is the capital structure of the firm issuing the the security. This study then, attempts to determine the effects of a firm's capital structure on the risk of its common stocks. In order to structure achieve this objective, a two part research on the theory of as advanced by Modigliani and Miller (1958 design is capital and 1963 ) and the second relies on a simple regression of leverage measures on risk measures. It relies on data on selected companies quoted at the Nairobi Stock Exchange - NSE securities market in Kenya.

The risk - return trade off 1.s almost a concluded issue in finance today. Studies have shown that the higher the risk of a security, the higher the returns the investors require. However, two major questions that this research has not addressed satisfactorily are the risk preferences of the investor and the factors that determine the risk of a security. This study looks partly at the second. Among he factors thought to influence the risk of a security is the capital structure of the firm issuing the the security. This study then, attempts to determine the effects of a firm's capital structure on the risk of its common stocks. In order to structure achieve this objective, a two part research on the theory of as advanced by Modigliani and Miller (1958 design is capital and 1963 ) and the second relies on a simple regression of leverage measures on risk measures. It relies on data on selected companies quoted at the Nairobi Stock Exchange - NSE securities market in Kenya.

The risk - return trade off 1.s almost a concluded issue in finance today. Studies have shown that the higher the risk of a security, the higher the returns the investors require. However, two major questions that this research has not addressed satisfactorily are the risk preferences of the investor and the factors that determine the risk of a security. This study looks partly at the second. Among he factors thought to influence the risk of a security is the capital structure of the firm issuing the the security. This study then, attempts to determine the effects of a firm's capital structure on the risk of its common stocks. In order to structure achieve this objective, a two part research on the theory of as advanced by Modigliani and Miller (1958 design is capital and 1963 ) and the second relies on a simple regression of leverage measures on risk measures. It relies on data on selected companies quoted at the Nairobi Stock Exchange - NSE securities market in Kenya.