Effect of Trading Activity on Financial Leverage and Financial Distress Likelihood of Listed Firms in Kenya
Journal Title: IOSR Journal of Economics and Finance (IOSR-JEF) - Year 2018, Vol 9, Issue 5
Abstract
Over the years, numerous cases of financial distress have been witnessed among listed firms in Nairobi Securities Exchange. Trading activity affects corporate financial decisions by reducing cost of capital and facilitating access to more funds on the capital markets. Consequently, trading activity enhances firm performance due to the feedback effect. In view of the aforementioned, the primary aim of this study is to determine the role of trading activity on the relationship between financial leverage and the likelihood of financial distress among listed firms in Kenya. The analysis is based on a sample of 40 listed firms on the Nairobi Securities Exchange-Kenya for the period 2006- 2015. The study found a positive and significant effect of financial leverage (β=0.824; p<0.05) on the likelihood of financial distress. Subsequently, when trading activity was introduced, the findings indicated that trading activity moderated the relationship between financial leverage and financial distress (β=-1.498; p;< 0.05), hence presence of moderating effects of trading activity on the relationship between financial leverage and financial distress. The findings that trading activity accounted for a significant variance on relationship between financial leverage and the likelihood of financial distress presents major contributions of this study as they extend feedback theories. This is by centering the influence of trading activity on the empirical testing of feedback theory. This study recommends that firms should have reversion of excess debt to an optimum and initiate trading activity enhancing policies so as to reduce the likelihood of financial distress. Further research should focus on using different samples like private non-listed firms which may provide additional insights and add to the existing understanding of the issues explored in this study.
Authors and Affiliations
Josephat Cheboi Yegon, Naomi C. Koske
Keywords
Related Articles
- EP ID EP414908
- DOI 10.9790/5933-0905010111.
- Views 218
- Downloads 0
Strategies for the Acceptability of Islamic Micro Finance Institutions in Nigeria
The aim of thisconceptual paper is to highlights about the strategies usefor the acceptability of Islamic microfinance institutions in northern Nigeria.Theobjectives of the paper are to discuss the acceptability and stra...
Effect of Trading Activity on Financial Leverage and Financial Distress Likelihood of Listed Firms in Kenya
Over the years, numerous cases of financial distress have been witnessed among listed firms in Nairobi Securities Exchange. Trading activity affects corporate financial decisions by reducing cost of capital and facilitat...
Socio-Economic Implications of Migrants’ Dollars in Nigeria: A Bounds Test Approach toCo integration
Migrants’ dollars play fundamental roles in the recipient’s economy, especially for the migrant’s households who rely on them for mitigating incidences of poverty and improving their living standard. In this paper, effor...
Trade creation and Trade Diversion in the COMESA: Evidence of Kenya’s import Flows in Food and Live Animals
The paper used gravity model to analyze trade creation and trade diversion. All continous variables exhibited unit root at levels except for population, but all became stationary after first dfference. It was found that...
Public education expenditures and intergenerational income mobility: a logit model
Using data from the National Survey of Living Standards of Households in Morocco conducted in 2007 (NSLSHM 2007), we show that intergenerational income mobility (IIM) in Morocco is lower compared to that recorded in indu...