DETERMINANTS OF FINANCIAL DISTRESS AMONG LISTED FIRMS AT THE NAIROBI SECURITIES EXCHANGE, KENYA

Abstract

This study aimed at establishing the determinants of financial distress in the context of listed firms where despite there being strict compliance and regulation rules and the reporting frameworks in place firms still struggled to operate and were faced with financial distress challenges. The specific objectives of the study were to show the influence of liquidity, the influence of financial leverage, the influence of capital structure and the influence of asset structure on financial distress of listed firms at the NSE. A descriptive survey design was adopted and the target population for the study was 65 listed firms and a census was conducted for all the listed firms. Document analysis sheet was used to collect secondary data. Data was analyzed using SPSS and multiple regression showed that Liquidity (β=-1.221, p-value=.004)), Financial leverage (β=5.002, p- value=.031), capital structure (β=0.531, p-value=.025) significantly influence financial distress of listed firms at the NSE whereas asset structure (β=6.051, p=.067) had an insignificant positive effect on financial distress of listed firms at the NSE. The study concluded that liquidity, financial leverage and capital structure were significant determinants of financial distress and thus firms should strive to adopt moderate thresholds that ensure payment of maturing short term obligations while also ensuring maximum returns on investment. The study recommended that firms should strive to maintain an optimal liquidity and debt level that could lower the cost of borrowing such that the earnings generated by debt financing are not exhausted by fixed charge payments such as interest. Lastly the management of firms listed at the NSE should periodically review their capital structure so as to alter it depending on the financial fortunes of the company. The regulatory authority should continuously play their vigilance roles so as to ensure investor’s wealth is safeguarded so as to enhance confidence in the capital markets authority. Key Words: Liquidity, Financial Leverage, Capital Structure, Asset Structure, Financial Distress