The relationship between cost of capital and investment decisions of companies listed in the Nairobi securities exchange

Abstract

This study sought to investigate the impact of cost of capital on the investment decision of non-financial firms listed at the Nairobi Securities Exchange It explores the interdependence of cost of capital and investment decisions by documenting the relationship between corporate leverage and investment choices. By using the data of non-financial companies listed in Nairobi Securities Exchange for five years (2008-2012) as the sample, the obtained data was filtered to obtain the relevant statistics that could be analyzed through SPSS. The analysis was done by applying multivariate regression analysis and t-test. The study found that there was a significant likelihood of a firm elevating-leverage to increase the company value. The result revealed that investment decision had influenced positively on the company value, which meant the investors assumed the management had performed well in searching and investing the obtained capital from debt. The research findings indicated that there was a weak positive relationship (R= 0.332) between the variables. The study also revealed that 10.40% of cost of capital of the firms listed at the Nairobi securities exchange can be explained by the independent variables. The results are in line Ojah (2009) who by using a panel of listed firms in Ghana, Kenya, Nigeria, South Africa and Zimbabwe found that the firms’ profitability, size, asset tangibility and age, related significantly to leverage