Capital financing behaviour: evidence from firms listed on the Nairobi Stock Exchange

Abstract

This study investigates the determinants of capital structure for a sample of 22 firms listed on the Nairobi Stock Exchange during the period 1991-1999. Reduced form equations derived from the static trade-off model and the pecking order hypothesis are estimated and tested using panel data techniques. The results show that a pecking order model with an adjustment process cannot be rejected. Specifically, it is found that the main determinants of capital financing behaviour consist of information asymmetries, non-debt tax shields and local capital market infrastructure.Nairobi Stock Exchange, static trade-off model and pecking order hypothesis,

Firm heterogeneity, macroeconomic conditions and capital structure adjustment speeds: Evidence from the JSE

“…In addition, the GOP variable has been used in capital structure research as a control measure for economic activity. For example, Ngugi (2008) finds that real GDP growth has a positive and significant impact on leverage. Likewise, De Jong, Kabir and Nguyen (2008) examine about 12 000 firms across 42 countries, and they conclude that, amongst other factors, growth in GDP causes variations in firm leverage.…”

“…Nonetheless, the majority of the studies on capital structure adjustment speeds assume that all firms adjust towards their target at the same pace. (See Ozkan (2001) ;De Miguel and Pindado (2001) and Ngugi (2008)). In this study, it is argued that firm specific heterogeneity should have contrasting effects on capital structure adjustment speeds.…”

“…Likewise, Ngugi (2008) reports low transaction costs, and a high speed of adjustment to the target capital structure. The author attributes this finding to a low proportion of company debt for Kenyan firms.…”

Post IPO dynamics of capital structure on the Johannesburg Stock Exchange

“…For instance, Ngugi (2008) and Ramjee and Gwatidzo (2012) provide evidence of targeting behaviour and relatively fast capital structure adjustment speeds for firms in Kenya and South Africa, respectively. Ezeoha and Botha (2012) confirm the existence of transaction costs for South African nonfinancial firms.…”

“…This is largely due to the measure used to capture growth opportunities. A majority of the studies that utilise the market to book ratio usually report a negative relationship between growth prospects and leverage (Rajan & Zingales, 1995;Barclay & Smith, 2005;Ngugi, 2008;Ezeoha & Botha 1 , 2012). This is expected as a high value of the share price in relation to the book value per share proxies for intangible growth opportunities (Barclay & Smith, 2005).…”