The Determinants of Capital Structure in the Energy and Petroleum Companies Listed in the Nairobi Securities Exchange

Abstract

One of the most important policies of any company is the financial policy. Financial planning involves estimation of the capital requirements of a firm as well as the determination of its composition. The objectives of financial planning include determining capital requirements, determining capital structure, and framing financial policies with regards to cash control, lending, and borrowings. A finance manager ensures that the scarce financial resources are utilized optimally in the best possible manner at least cost in order to get maximum returns on investment. Attaining an optimum capital structure is a key concern of each company due to the impact associated with financial distress and bankruptcy. Capital structure and its determinants have gained prominence among researchers over the years. This paper analyses some of the theories on the subject of capital structure to explain what could possibly be the determinants of capital structure. The study looks into the determinants of capital structure among the energy and petroleum companies quoted at the NSE from the year 2000 to 2010. Among the expected determinants of capital structure studied were: size of the company, age of the company, financial performance, growth rate and ownership structure. This study sought to establish the determinants of capital structure of the energy and petroleum companies listed at the NSE. The study shows that size of the company, its age, growth rate and ownership structure are key determinants of capital structure while financial performance has an insignificant impact on capital structure.