The Moderating Effect of Firm Size on the Relationship Between Capital Structure and Financial Distress of Non-Financial Companies Listed in Kenya

Robert Gitau Muigai; Jane Gathigia Muriithi

doi:doi:10.11648/j.jfa.20170504.15

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The Moderating Effect of Firm Size on the Relationship Between Capital Structure and Financial Distress of Non-Financial Companies Listed in Kenya

Robert Gitau Muigai, Jane Gathigia Muriithi

Published in Journal of Finance and Accounting (Volume 5, Issue 4)

Received: 28 April 2017 Accepted: 10 May 2017 Published: 23 June 2017

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Abstract

This paper sought to establish the moderating effect of firm size on the relationship between capital structure and financial distress of listed non-financial firms in Kenya. Firm size was measured using the natural logarithm of total assets while capital structure was operationalized by total debt, long-term debt and short term debt financing. The degree of financial distress was measured using the Altman’s Z-score index as reviewed for the emerging markets. Secondary data from audited and published financial statements was collected on the 40 listed non-financial firms between year 2006 and 2015. The study estimated the specified panel regression model for fixed effects as supported by the Hausman test results. Feasible Generalized Least Squares (FGLS) regression results revealed that firm size has a significant moderating effect on the relationship between capital structure and financial distress of non-financial firms. Specifically, the study found that although generally debt has a negative and significant effect on financial distress of the studied companies, this effect becomes positive and significant as the size of the firm increases. The study further found that use of long term debt has a positive and significant effect among large-scale firms while short term debt is significantly detrimental. On the basis of these empirical findings, the study recommended that managers of listed non-financial companies should always consider the size of the firm in making leverage choice decisions for their entities.

Published in	Journal of Finance and Accounting (Volume 5, Issue 4)
DOI	10.11648/j.jfa.20170504.15
Page(s)	151-158
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), 2017. Published by Science Publishing Group

Keywords

Capital Structure, Financial Distress, Firm Size

References

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APA Style

Robert Gitau Muigai, Jane Gathigia Muriithi. (2017). The Moderating Effect of Firm Size on the Relationship Between Capital Structure and Financial Distress of Non-Financial Companies Listed in Kenya. Journal of Finance and Accounting, 5(4), 151-158. https://doi.org/10.11648/j.jfa.20170504.15

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ACS Style

Robert Gitau Muigai; Jane Gathigia Muriithi. The Moderating Effect of Firm Size on the Relationship Between Capital Structure and Financial Distress of Non-Financial Companies Listed in Kenya. J. Finance Account. 2017, 5(4), 151-158. doi: 10.11648/j.jfa.20170504.15

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AMA Style

Robert Gitau Muigai, Jane Gathigia Muriithi. The Moderating Effect of Firm Size on the Relationship Between Capital Structure and Financial Distress of Non-Financial Companies Listed in Kenya. J Finance Account. 2017;5(4):151-158. doi: 10.11648/j.jfa.20170504.15

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@article{10.11648/j.jfa.20170504.15,
  author = {Robert Gitau Muigai and Jane Gathigia Muriithi},
  title = {The Moderating Effect of Firm Size on the Relationship Between Capital Structure and Financial Distress of Non-Financial Companies Listed in Kenya},
  journal = {Journal of Finance and Accounting},
  volume = {5},
  number = {4},
  pages = {151-158},
  doi = {10.11648/j.jfa.20170504.15},
  url = {https://doi.org/10.11648/j.jfa.20170504.15},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20170504.15},
  abstract = {This paper sought to establish the moderating effect of firm size on the relationship between capital structure and financial distress of listed non-financial firms in Kenya. Firm size was measured using the natural logarithm of total assets while capital structure was operationalized by total debt, long-term debt and short term debt financing. The degree of financial distress was measured using the Altman’s Z-score index as reviewed for the emerging markets. Secondary data from audited and published financial statements was collected on the 40 listed non-financial firms between year 2006 and 2015. The study estimated the specified panel regression model for fixed effects as supported by the Hausman test results. Feasible Generalized Least Squares (FGLS) regression results revealed that firm size has a significant moderating effect on the relationship between capital structure and financial distress of non-financial firms. Specifically, the study found that although generally debt has a negative and significant effect on financial distress of the studied companies, this effect becomes positive and significant as the size of the firm increases. The study further found that use of long term debt has a positive and significant effect among large-scale firms while short term debt is significantly detrimental. On the basis of these empirical findings, the study recommended that managers of listed non-financial companies should always consider the size of the firm in making leverage choice decisions for their entities.},
 year = {2017}
}

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TY  - JOUR
T1  - The Moderating Effect of Firm Size on the Relationship Between Capital Structure and Financial Distress of Non-Financial Companies Listed in Kenya
AU  - Robert Gitau Muigai
AU  - Jane Gathigia Muriithi
Y1  - 2017/06/23
PY  - 2017
N1  - https://doi.org/10.11648/j.jfa.20170504.15
DO  - 10.11648/j.jfa.20170504.15
T2  - Journal of Finance and Accounting
JF  - Journal of Finance and Accounting
JO  - Journal of Finance and Accounting
SP  - 151
EP  - 158
PB  - Science Publishing Group
SN  - 2330-7323
UR  - https://doi.org/10.11648/j.jfa.20170504.15
AB  - This paper sought to establish the moderating effect of firm size on the relationship between capital structure and financial distress of listed non-financial firms in Kenya. Firm size was measured using the natural logarithm of total assets while capital structure was operationalized by total debt, long-term debt and short term debt financing. The degree of financial distress was measured using the Altman’s Z-score index as reviewed for the emerging markets. Secondary data from audited and published financial statements was collected on the 40 listed non-financial firms between year 2006 and 2015. The study estimated the specified panel regression model for fixed effects as supported by the Hausman test results. Feasible Generalized Least Squares (FGLS) regression results revealed that firm size has a significant moderating effect on the relationship between capital structure and financial distress of non-financial firms. Specifically, the study found that although generally debt has a negative and significant effect on financial distress of the studied companies, this effect becomes positive and significant as the size of the firm increases. The study further found that use of long term debt has a positive and significant effect among large-scale firms while short term debt is significantly detrimental. On the basis of these empirical findings, the study recommended that managers of listed non-financial companies should always consider the size of the firm in making leverage choice decisions for their entities.
VL  - 5
IS  - 4
ER  -

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Author Information

Robert Gitau Muigai

Department of Finance and Accounting, School of Business and Economics, Kirinyaga University, Nairobi, Kenya
Jane Gathigia Muriithi

Department of Economics, Accounting and Finance, School of Business, Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya

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APA Style

Robert Gitau Muigai, Jane Gathigia Muriithi. (2017). The Moderating Effect of Firm Size on the Relationship Between Capital Structure and Financial Distress of Non-Financial Companies Listed in Kenya. Journal of Finance and Accounting, 5(4), 151-158. https://doi.org/10.11648/j.jfa.20170504.15

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ACS Style

Robert Gitau Muigai; Jane Gathigia Muriithi. The Moderating Effect of Firm Size on the Relationship Between Capital Structure and Financial Distress of Non-Financial Companies Listed in Kenya. J. Finance Account. 2017, 5(4), 151-158. doi: 10.11648/j.jfa.20170504.15

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AMA Style

Robert Gitau Muigai, Jane Gathigia Muriithi. The Moderating Effect of Firm Size on the Relationship Between Capital Structure and Financial Distress of Non-Financial Companies Listed in Kenya. J Finance Account. 2017;5(4):151-158. doi: 10.11648/j.jfa.20170504.15

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@article{10.11648/j.jfa.20170504.15,
  author = {Robert Gitau Muigai and Jane Gathigia Muriithi},
  title = {The Moderating Effect of Firm Size on the Relationship Between Capital Structure and Financial Distress of Non-Financial Companies Listed in Kenya},
  journal = {Journal of Finance and Accounting},
  volume = {5},
  number = {4},
  pages = {151-158},
  doi = {10.11648/j.jfa.20170504.15},
  url = {https://doi.org/10.11648/j.jfa.20170504.15},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20170504.15},
  abstract = {This paper sought to establish the moderating effect of firm size on the relationship between capital structure and financial distress of listed non-financial firms in Kenya. Firm size was measured using the natural logarithm of total assets while capital structure was operationalized by total debt, long-term debt and short term debt financing. The degree of financial distress was measured using the Altman’s Z-score index as reviewed for the emerging markets. Secondary data from audited and published financial statements was collected on the 40 listed non-financial firms between year 2006 and 2015. The study estimated the specified panel regression model for fixed effects as supported by the Hausman test results. Feasible Generalized Least Squares (FGLS) regression results revealed that firm size has a significant moderating effect on the relationship between capital structure and financial distress of non-financial firms. Specifically, the study found that although generally debt has a negative and significant effect on financial distress of the studied companies, this effect becomes positive and significant as the size of the firm increases. The study further found that use of long term debt has a positive and significant effect among large-scale firms while short term debt is significantly detrimental. On the basis of these empirical findings, the study recommended that managers of listed non-financial companies should always consider the size of the firm in making leverage choice decisions for their entities.},
 year = {2017}
}

Copy | Download

TY  - JOUR
T1  - The Moderating Effect of Firm Size on the Relationship Between Capital Structure and Financial Distress of Non-Financial Companies Listed in Kenya
AU  - Robert Gitau Muigai
AU  - Jane Gathigia Muriithi
Y1  - 2017/06/23
PY  - 2017
N1  - https://doi.org/10.11648/j.jfa.20170504.15
DO  - 10.11648/j.jfa.20170504.15
T2  - Journal of Finance and Accounting
JF  - Journal of Finance and Accounting
JO  - Journal of Finance and Accounting
SP  - 151
EP  - 158
PB  - Science Publishing Group
SN  - 2330-7323
UR  - https://doi.org/10.11648/j.jfa.20170504.15
AB  - This paper sought to establish the moderating effect of firm size on the relationship between capital structure and financial distress of listed non-financial firms in Kenya. Firm size was measured using the natural logarithm of total assets while capital structure was operationalized by total debt, long-term debt and short term debt financing. The degree of financial distress was measured using the Altman’s Z-score index as reviewed for the emerging markets. Secondary data from audited and published financial statements was collected on the 40 listed non-financial firms between year 2006 and 2015. The study estimated the specified panel regression model for fixed effects as supported by the Hausman test results. Feasible Generalized Least Squares (FGLS) regression results revealed that firm size has a significant moderating effect on the relationship between capital structure and financial distress of non-financial firms. Specifically, the study found that although generally debt has a negative and significant effect on financial distress of the studied companies, this effect becomes positive and significant as the size of the firm increases. The study further found that use of long term debt has a positive and significant effect among large-scale firms while short term debt is significantly detrimental. On the basis of these empirical findings, the study recommended that managers of listed non-financial companies should always consider the size of the firm in making leverage choice decisions for their entities.
VL  - 5
IS  - 4
ER  -

Copy | Download