Capital structure is the mix of debt and equity that the firm uses in its operation. Managers utilize most of their substantial time in attempting to find the perfect capital structure in terms of risk/reward payoff for shareholders. This is true for both large and small companies trying to strategize on how much of equity and debt to be used without putting the business at risk. The main objective of this study was to determine the relationship between capital Structure and profitability of listed energy and petroleum companies in Kenya by establishing the relationship between long-term and short-term debts with profitability and its effects. Descriptive and causal research designs were used. The study target population was four energy and petroleum companies listed in NSE that operates in Kenya. A census all the 4 energy and petroleum companies listed in the Nairobi securities exchange was used. Secondary data used for data analysis was obtained from the companies financial statements for a period of five years from 2012 to 2016. Data analysis was done using inferential statistics using SPSS. The study established a strong positive relationship between short term debt and ROA and an average negative relationship between Long term debts and ROA and a weak positive relationship between total debt and ROA. Both the short term and long term debts were found to have no significant effect on ROA at 5% level of significance.
| Published in | Journal of Investment and Management (Volume 6, Issue 5) |
| DOI | 10.11648/j.jim.20170605.11 |
| Page(s) | 97-102 |
| Creative Commons |
This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited. |
| Copyright |
Copyright © The Author(s), 2024. Published by Science Publishing Group |
Capital Structure, Long-Term Debt, Short-Term Debt, Return on Assets, Profitability
| [1] | Abor, J. (2005) "The effect of capital structure on profitability: an empirical analysis of listed firms in Ghana", The Journal of Risk Finance, Vol. 6 Issue: 5, pp.438-445, doi: 10.1108/15265940510633505. |
| [2] | Bachman, R. (2007). The Practice of Research in Criminology and Criminal Justice, Causation and Research Designs. 3rd ed. Thousand Oaks, CA: Pine Forge Press. |
| [3] | Boweman, O. P. (2012) Essentials of business statistics. 3nd edition. |
| [4] | Brains, C., Willnat, L., Manheim, J., & Rich, R. (2011). Empirical Political Analysis 8th edition. Boston, MA: Longman. |
| [5] | Cecchetti, S. & Schoenholtz, K. (2011): Money, banking and financial markets, third edition, New York, McGraw-Hill. |
| [6] | Charles, A. and Peter, L. A. The Effect of Debt Financing on the Profitability of SMEs in Accra Metropolis. Adrri Journal of Arts And Social Sciences. ISSN: 2343-6891 ISSN-L: 2343-6891VOL. 13, No. 2 (2), May, 2015. |
| [7] | David, A. F. (2005). Statistical Models: Theory and Practice, Cambridge University Press. |
| [8] | Isabwa, K. H and Albert, C.. (2015). The effect of long term loan on firms performance in Kenya. A survey of selected sugar manufacturing firms. Global Journal of advanced research, vol-2, issue 6, pp 1019-1024. ISSN: 2394-5788. |
| [9] | Joshua, K. (2017). An Introduction to Capital Structure. Why Capital Structure Matters to Your Investments, Retrieved from https://www.thebalance.com/an-introduction-to-capital-structure-357496.html. |
| [10] | Majumdar, S. K., & Sen, K. (2010). Corporate Borrowing and Profitability in India. Managerial and Decision Economics. |
| [11] | Martyn Shuttleworth, 2017 Descriptive Research Design Retrieved from https://explorable.com/users/martyn https://explorable.com/descriptive-research-design. |
| [12] | Mohammad, F. S & Jaafer, M. (2012) The Relationship between Capital Structure and Profitability. International Journal of Business and Social Science Vol. 3 No. 16 SI – August 2012, ISSN 2219-1933. |
| [13] | Myers, S. C. (1984). The Capital Structure Puzzle.. The Journal of Finance. 39 (3), 575-592. |
| [14] | Nikoletseas, M. M. (2014). “Statistics: Concepts and Examples.” ISBN 978-1500815684. |
| [15] | Nitin B. (2015). Loan repayment decisions. |
| [16] | Rainhart & Rogoff (2009). The Aftermath of Financial Crises, Working Paper No. 14656. |
| [17] | Siddharth Kalla (2017) Correlational study. Retrieved at https://explorable.com/correlational-study 161. 7 K reads 1 Comment. |
| [18] | Tiffany, C. W. (2015). The Advantages of Long-Term Debt Financing. Demand Media. Retrieved from http://smallbusiness.chron.com/advantages-longterm-debt-financing-60857.html |
| [19] | Gill, Amarjit. (2011). The effects of capital structure on profitability: Evidence from United States. International Journal of Management. 28. 3-15. |
| [20] | Kimberly C. Gleason (2000). The Interrelationship between Culture, Capital Structure, and Performance: Evidence from European Retailers. Journal of Business Research 50, 185–191. |
APA Style
Peter Njagi Kirmi. (2018). Relationship Between Capital Structure and Profitability, Evidence From Listed Energy and Petroleum Companies Listed in Nairobi Securities Exchange. Journal of Investment and Management, 6(5), 97-102. https://doi.org/10.11648/j.jim.20170605.11
ACS Style
Peter Njagi Kirmi. Relationship Between Capital Structure and Profitability, Evidence From Listed Energy and Petroleum Companies Listed in Nairobi Securities Exchange. J. Invest. Manag. 2018, 6(5), 97-102. doi: 10.11648/j.jim.20170605.11
AMA Style
Peter Njagi Kirmi. Relationship Between Capital Structure and Profitability, Evidence From Listed Energy and Petroleum Companies Listed in Nairobi Securities Exchange. J Invest Manag. 2018;6(5):97-102. doi: 10.11648/j.jim.20170605.11
Share This Article
Twitter
Linked In
Facebook
Copy
Download@article{10.11648/j.jim.20170605.11,
author = {Peter Njagi Kirmi},
title = {Relationship Between Capital Structure and Profitability, Evidence From Listed Energy and Petroleum Companies Listed in Nairobi Securities Exchange},
journal = {Journal of Investment and Management},
volume = {6},
number = {5},
pages = {97-102},
doi = {10.11648/j.jim.20170605.11},
url = {https://doi.org/10.11648/j.jim.20170605.11},
eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jim.20170605.11},
abstract = {Capital structure is the mix of debt and equity that the firm uses in its operation. Managers utilize most of their substantial time in attempting to find the perfect capital structure in terms of risk/reward payoff for shareholders. This is true for both large and small companies trying to strategize on how much of equity and debt to be used without putting the business at risk. The main objective of this study was to determine the relationship between capital Structure and profitability of listed energy and petroleum companies in Kenya by establishing the relationship between long-term and short-term debts with profitability and its effects. Descriptive and causal research designs were used. The study target population was four energy and petroleum companies listed in NSE that operates in Kenya. A census all the 4 energy and petroleum companies listed in the Nairobi securities exchange was used. Secondary data used for data analysis was obtained from the companies financial statements for a period of five years from 2012 to 2016. Data analysis was done using inferential statistics using SPSS. The study established a strong positive relationship between short term debt and ROA and an average negative relationship between Long term debts and ROA and a weak positive relationship between total debt and ROA. Both the short term and long term debts were found to have no significant effect on ROA at 5% level of significance.},
year = {2018}
}
TY - JOUR T1 - Relationship Between Capital Structure and Profitability, Evidence From Listed Energy and Petroleum Companies Listed in Nairobi Securities Exchange AU - Peter Njagi Kirmi Y1 - 2018/01/10 PY - 2018 N1 - https://doi.org/10.11648/j.jim.20170605.11 DO - 10.11648/j.jim.20170605.11 T2 - Journal of Investment and Management JF - Journal of Investment and Management JO - Journal of Investment and Management SP - 97 EP - 102 PB - Science Publishing Group SN - 2328-7721 UR - https://doi.org/10.11648/j.jim.20170605.11 AB - Capital structure is the mix of debt and equity that the firm uses in its operation. Managers utilize most of their substantial time in attempting to find the perfect capital structure in terms of risk/reward payoff for shareholders. This is true for both large and small companies trying to strategize on how much of equity and debt to be used without putting the business at risk. The main objective of this study was to determine the relationship between capital Structure and profitability of listed energy and petroleum companies in Kenya by establishing the relationship between long-term and short-term debts with profitability and its effects. Descriptive and causal research designs were used. The study target population was four energy and petroleum companies listed in NSE that operates in Kenya. A census all the 4 energy and petroleum companies listed in the Nairobi securities exchange was used. Secondary data used for data analysis was obtained from the companies financial statements for a period of five years from 2012 to 2016. Data analysis was done using inferential statistics using SPSS. The study established a strong positive relationship between short term debt and ROA and an average negative relationship between Long term debts and ROA and a weak positive relationship between total debt and ROA. Both the short term and long term debts were found to have no significant effect on ROA at 5% level of significance. VL - 6 IS - 5 ER -
Information
Email: