Effect of Financial Structure on Operational Efficiency of Non-Financial Firms Listed at Nairobi Securities Exchange

Abstract

A significant number of the non-financial firms listed at the Nairobi Securities Exchange (NSE) have been experiencing declining financial performance, which deter investors from investing in such firms. It is not clear whether an optimal financial structure can lead to the operational efficiency of the firm. In addition, there exists a great dilemma for scholars, business managers, investors, among other stakeholders, as to whether there exists an optimal financial structure that maximizes the financial growth of the firm. This study aimed at establishing the effect of financial structure on the operational efficiency of non-financial firms listed at Nairobi Securities Exchange. The study was also guided by the following specific objectives which was to establish the effect of short-term debt, long-term debt, retained earnings and lastly share capital on operational efficiency of non-financial firms listed at Nairobi Securities Exchange. The study was guided by the Agency Theory, Pecking Order Theory, Trade-off Theory, Market Timing Theory and Theory of Growth of the Firm. An explanatory research design was adopted. The target population of the study comprised of 45 non-financial firms listed at the NSE for a period of ten years, from 2013 to 2022.The target population of the study comprised of 45 non-financial firms listed at the NSE for a period of ten years from 2013 to 31st December 2022 (NSE, 2022).The study adopted a census technique where all non-financial firms listed at NSE were considered. The study used a secondary data collection template to collect the data. Secondary data was extracted from published audited financial statements and NSE handbooks. Secondary data obtained covered a period of 10 years beginning from 2013 and ending in 2022.The study used secondary data collected from financial records of the listed non-financial firms. Descriptive statistics included mean, minimum, maximum, range standard deviations, coefficient of variation and trend analysis. Based on the findings, the study concluded that, short term debt has a positive and significant relationship with operational efficiency. It was further concluded that, long term debt has a positive and significant relationship with operational efficiency. The study also concluded that retained earnings has a positive and significant relationship with operational efficiency. The study finally concluded that, share capital has a positive and significant relationship with operational efficiency