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AN EMPIRICAL ANALYSIS OF MACRO-ECONOMIC INFLUENCES ON CORPORATE CAPITAL STRUCTURE OF LISTED COMPANIES IN KENYA.

Capital structure is an important aspect of financial management. For maximization of the value
of the firm, the management tries to arrive at a proper mixture of debt and equity, which is not an
easy task to do. Different factors have been considered in different models to get an optimum
capital structure. Economic factors, among them play a leading role in the determination of the
capital structure of a company. The influence of micro economic factors has been highlighted by
various scholars, but the influence of macro economic factors in the determination of capital
structure is somewhat under-researched in the finance literature. This study, attempted to analyze
the influence of the macro economic factors on the capital structure of some selected companies
in Kenya. The objective of the study was to determine the magnitude and the direction of the
relationship between selected macroeconomic variables on corporate capital structure of listed
companies in Kenya.
The study took both analytical and descriptive research design, on a target population of all firms
listed at the Nairobi Stock Exchange for the period between January 2004 and December 2008
which were 39 in number. The study used secondary data sources from the companies’ books of
accounts and financial report and the macro-economic data from the Central Bureau of Statistics
and Central Bank of Kenya. The study used econometric models of multiple linear regressions
where leverage (debt ratios) was regressed against GDP growth rate, inflation, ratio of and
interest rate.The results of the study revealed that the influence of some macro economic factors upon the
capital structure of the companies is pronounced. The study found out that macro-economic
factors like GDP growth rate has a positive influence on long term debt ratio and a negative
influence on total debt ratio and short term debt ratio, inflation only has a negative influence on
the short debts of the Kenyan listed companies and interest rate as measured by the treasury bills
has a positive influence on the long term debt ratio and total debt ratio and a negative influence
on the short term debt ratio.

 

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Dr. Mose Aranga

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