The Size, Earnings and the Leverage of Agricultural Companies Listed at the Nairobi Securities Exchange

Abstract

Financing viable business project is an issue that each and every financial manager poses to think seriously about to enable them carry it out in a way that will enable the firm maximize its return. This has therefore made them to battle with the choice of whether to finance their project fully using debt financing, pure equity or a combination of both debt and equity, giving rise to the question on the value of capital structure to a firm, especially the value of using debt finance in the firm. This paper therefore sought to find out the relationship between the earnings of the firm, the size and the level of financial leverage of agricultural firms listed at the Nairobi Security Exchange (NSE). The study focused on the agricultural firms listed at the Nairobi Security Exchange as a representation of the firms within the agricultural sector in Kenya due to their huge capital investment and their sizes. The study was based on secondary data which had been collected from the NSE for a period of five years (2008 - 2012). In fulfilling the objective, the researcher employed correlation and regression analysis to determine the relationship between the size, earnings and the leverage of the agricultural firms which confirmed a positive relationship between the leverage of the firm and its size, and a negative relationship between the leverage level of these firms and their earnings. The findings of the study will help the managers in determining how best they should finance their projects if they want to achieve maximum profit.