How Debt Financing Decisions Relate With Financial Performance Of State-Owned Corporations In Kenya

Abstract

Financing decisions, especially debt financing, have been revealed to have noteworthy implications for the operations of corporations. Studies on finance have revolved around the theory that certain financial policies, like debt financing, should either boost or hamper a corporation’s competitive performance. The aim of this study, therefore, was to determine the effects of debt financing on the financial performance of state-owned corporations in Kenya. The “financial leverage”, which is the proportion of debt financing of state-owned corporations, based on the total debt and the total assets, was the object of analysis for the period 2002 to 2012. The fixed effects (FE), random effects (RE) and the generalized method of moments (GMM) panel data regression analysis models were applied using the financial performance ratios, such as ROA, ROI and ROE. The results determined that debt financing is inversely related to financial performance of state-owned corporations in Kenya.