Capital structure and growth of consumer goods firms listed in the Nairobi securities exchange

Abstract

The consumer goods manufacturing sector has been identified as a sector with great potential for promoting economic growth and competitiveness in Kenya. However, the sector has been experiencing fluctuations over the years under different financial conditions. Generally, the study sought to establish the effect of capital structure on the growth of consumer goods firms listed on the NSE. Specifically, it was guided by the following objectives: to determine the impact of long-term debt on the firm’s growth, to evaluate the influence of short-term debt on the growth of the firm, determining how financing ordinary share affects the growth of consumer goods firms listed on the NSE, to assess the effect of retained earnings on the growth of consumer goods firms listed on the NSE. This study was guided by net income approach theory and supported by the traditional and pecking order theories. The study adopted a descriptive research design. There was use of secondary data from annual reports and statements from the assessed 12 consumer goods firms listed in the NSE from 1st January, 2018 to 31st December, 2022. The study adopted Normality, Multi-collinearity, Autocorrelation and heteroscedasticity regression tests and correlation analysis, and multiple regression model. findings were presented in tables, bar and pie charts and prose form for its discussion. The study established that long-term debt financing had the greatest significant effect on growth of consumer goods firms listed in the NSE (β=0.771, p<0.05) followed by short term debt financing (β=0.667, p<0.05), financing of ordinary shares (β=0.613, p<0.05) and lastly retained earnings (β=0.572, p<0.05) in that order. It was thus, concluded that capital structure is a significant predictor of the growth of consumer goods firms listed on the NSE. The study recommends that financing managers working with consumer goods firms listed in the NSE to ensure prudent utilization of debentures, bonds and bank loans to optimize the available growth opportunities. Senior managers working in consumer goods firms listed in the NSE should effectively leverage and utilize deferred revenues, accrued debts and accounts payable to achieve superior growth. Senior managers working in consumer goods firms listed in the NSE should capitalize on rights issue and bonus issues that should be invested in viable growth opportunities. Finance managers working with consumer goods firms listed in the NSE should balance between current and non-current assets for optimal asset tangibility.