Financial leverage and performance of listed firms in a frontier market: Panel evidence from Kenya

Abstract

This paper investigates the relationship between financial leverage and the financial performance of listed firm in Kenya. We use annual data for the period 2007–2011. Using various panel procedures, the study finds reasonably strong evidence that financial leverage significantly, and negatively, affects the performance of listed firms in Kenya (ROA, β=-. 0438, p=. 0350) and Tobin's Q, β=-. 5144, p=. 0124). However, financial leverage negative but insignificant effect on ROE, β=-. 0176, p=. 5765). Unit root test results indicate: all the variables are integrated of order zero (p=. 000). Second, because the performance of firms depends on other things than just their financial leverage, we control for the effects of those other variables by including them in our models. In this respect, the findings suggest that asset tangibility (β=. 2302, p=. 0215) and ownership concentration (β=-. 0057 (p …