| dc.description.abstract | Capital structure decisions help to maximization of the value of the firm; but in most cases these capital structure decisions if they are inappropriate the performance of firms shall remain in jeopardy. The sugar industry play a significant role in socio-economic development of the economy. It is estimated that six million Kenyans derive their livelihood directly or indirectly from the sugar industry. Despite these dependence most of the sugar firms in western Kenya are facing myriad of problems that hurt their profitability, sales volume and financial leverage. The purpose of this study was to determine the effect of Capital Structure decisions on financial performance of Sugar firms in Western Kenya. The study objectives are: examine the effect of loan financing on financial performance, determine the effect of debenture financing on financial
performance, assess the effect of preference share capital financing on financial performance, assess the effect of ordinary share capital financing on financial performance, and evaluate the effect of institutional capital (Retained Earnings) financing on financial performance of sugar companies in western Kenya. The research was directed by Trade-Off and Pecking order Theories. The study adopted the use of descriptive survey study design. The study unit of analysis was the 11 sugar companies in western Kenya, from which a target population of 149 employees were used. The study sample size was 109 respondents selected using Fischer formula and simple random sampling was adopted. Both primary and secondary sources of data were used. Primary data was collected using questionnaires and interview guide. Secondary data was obtained from the Kenya Sugar Board Annual reports, Finance departments of the sugar companies and the Sugar survey manuals/financial reports using the secondary data collection sheet. Data analysis was done using both descriptive and inferential statistical tools and the results thereof interpreted. The study findings revealed that: one unit increase in cane maintenance loan causes 0.225 unit change in financial performance of the sugar firms in western Kenya. For cane development loans a unit increase in their use causes 0.224 unit increase in financial performance of the sugar firms. Further it is observed that a unit increase in the use of factory rehabilitation loans causes 0.429 increases in financial performance and for machinery and equipment loans a unit increase in its use causes 0.219 unit increase in financial performance in the sugar firms in western Kenya. The capital structure decisions (Loan financing, Debenture financing, preference share capital, ordinary share capital, institutional capital) account for 63.1% (R = 0.631, p <.05) of discrepancy in the outcome (financial performance). The ANOVA results showed that regression was significant for modeling with F (3, 94) =46.502 being significant statistically (p<0.05). The variables’ coefficients, the study found that the constant term (B = 12.51, p <.05), loan financing (B = 0.633, p <.05), Debenture financing (B = .481, p = .038), preference share capital (B=0.578; p=0.028); ordinary share capital (B=0.442; p= 0.011) and Institutional Capital (B = 0.467, p =.019). All these variables (predictors) were found to be statistically significant and positively predicted the financial performance of the sugar firms, since in all their p-values, (P<0.05). Hence as various forms of capital structure decreases so is the financial performance of the sugar firms in western Kenya. The study concludes that sugar firms should embrace the use of capital structure decisions to improve on their financial performance. | en_US |
