Influence of Preference Share Capital on Financial Performance of Listed Manufacturing and Allied Firms in Kenya
DOI:
https://doi.org/10.37075/FABA.2025.2.11Keywords:
Preference share capital, financial performance, manufacturing and allied firmsAbstract
Purpose: This study assessed the influence of preference share capital on financial performance of listed manufacturing and allied firms in Kenya. The research applied Modigliani and Miller theory, Trade-off, Pecking Order, and Market Timing and the stakeholder theories appropriately.
Design/Methodology/Approach: The target population comprised 248-line managers within the manufacturing firms listed on the NSE from 2016 to 2022. Data collection method utilized was both secondary and primary. Data analysis included inferential: regression analysis, Chi-Square, and ANOVA test while descriptive statistics involved the use of Range, Variance, and Standard deviation. Presentation of data was done by clear use of figures including tables. Financial performance was measured by return on assets ratio.
Findings: The findings indicated that Preference shares have a significant positive effect on the financial performance of listed manufacturing and allied firms (p value<0.05). The study concludes that preference share capital significantly enhances the financial performance of listed manufacturing and allied firms by providing a stable funding base, improving liquidity, and reducing the cost of equity.
Practical Implications: The study recommends that firms prioritize the use of preference shares to carefully manage debt levels, strategically reinvest retained earnings, and consider ownership structures when developing capital strategies. Additionally, it recommends the need for policies that support the adoption of these practices to foster sustainable growth and financial stability in the sector.
Originality/Value: The findings offer insights to investors, policymakers, and corporate managers regarding the optimal structuring of capital to enhance firm value and competitiveness.
Paper Type: Research Paper
Downloads
References
Adeyemi, A., and C. Oboh. 2020. Capital structure and firm performance in emerging markets: Evidence from Nigeria. International Journal of Economics and Financial Issues, 10(3): 45–54. https://doi.org/10.32479/ijefi.9532
Antoniou, A., and C. Stewart. 2018. Determinants of capital structure: Evidence from UK, German, and French firms. Journal of Corporate Finance, 50: 1–19. https://doi.org/10.1016/j.jcorpfin.2018.01.005
Brigham, E. F., and M. C. Ehrhardt. 2013. Financial management: Theory and practice (14th ed.). Cengage Learning.
CBK. 2023. Central Bank of Kenya Economic Outlook 2023. https://www.centralbank.go.ke
Changaya, L., and O. Fatoki. 2020. The role of securities exchanges in promoting corporate financing in sub-Saharan Africa. African Journal of Finance, 7(2): 99–110.
Chong, K., and Y. Wang. 2021. Preference share capital and firm performance: Evidence from Southeast Asian manufacturing firms. Asian Economic and Financial Review, 11(4): 280–295. https://doi.org/10.18488/journal.aefr.2021.114.280.295
Deloitte Touche. 2019. Kenya economic outlook: Navigating through turbulent times. Deloitte East Africa. https://www2.deloitte.com/ke/en/pages/economy/articles/kenya-economic-outlook.html
Ebaid, A. S. 2018. Effects of capital-structure choice on performance of firms: Practical evidence from Egyptian Firms. The journal of risk finance, 11(6): 266- 367.
Economic Outlook. 2023. Kenya Economic Outlook 2023. Kenya National Bureau of Statistics. https://www.knbs.or.ke
Fathi, A., M. Alkhazaleh, and A. Hamdan. 2022. Preference share financing and firm performance in emerging markets. Journal of Economic and Administrative Sciences, 38(4): 897–912. https://doi.org/10.1108/JEAS-09-2021-0184
Freeman, R. E. 1984. Strategic management: A stakeholder approach. Pitman Publishing.
French, E. I. 2019. Effects and Impact of Capital Structure Choice on Firm Performance: Evidence from Egypt. The Journal of Risk Finance, 11(6): 366-234.
Hussain, R., and S. Alam. 2023. Analyzing the relationship between preference shares and financial stability in South Asian markets. Global Journal of Emerging Markets, 14(2): 34-50.
Kariuki, J. 2018. Performance of Kenya’s manufacturing sector: Trends and implications. Journal of African Economic Studies, 9(3): 201–217.
Kenton, W. 2024. Economic growth and manufacturing performance. Investopedia. https://www.investopedia.com
Kimani, J., P. Njoroge, and M. Waweru. 2023. Preference share capital and financial strategy among manufacturing firms in emerging economies. International Journal of Finance and Accounting, 8(1): 44–56. https://doi.org/10.5923/j.ijfa.20230801.05
Kiogora, J. M. 2019. Effect of financial leverage on financial performance of firms listed at the Nairobi Securities Exchange, Kenya. International Journal of Finance and Accounting, 4(2): 87–101.
Kojo, D., and G. Amoako. 2020. Capital structure decisions and financial performance of listed firms in Ghana. Journal of Accounting and Finance in Emerging Economies, 6(1): 35–49. https://doi.org/10.26710/jafee.v6i1.1060
Lagat, F. 2020. Financial crises and industrial performance: The Kenyan manufacturing sector. Journal of Economic Development in Africa, 12(2): 145–158.
Maina, E., and M. Omwenga. 2019. Manufacturing and allied sectors in Kenya: An empirical review. African Journal of Business and Management, 13(4): 125–138.
Modigliani, F., and M. H. Miller. 1958. The cost of capital, corporation finance and the theory of investment. American Economic Review, 48(3): 261–297. https://www.jstor.org/stable/1809766
Muhammad, A. 2019. Capital structure and financial performance of retail firms listed in Nigeria. International Journal of Finance and Accounting, 8(2): 77–89.
Mule A. O, and W. A.Mukras. 2018. Capital Structure and Financial Performance of Commercial and Services Firms Listed at Nairobi Securities Exchange, Kenya. MBA Finance Research Project, Kenyatta University, Kenya.
Mwiya, K., J. Phiri, and E. Ngwenya. 2021. The impact of preference shares on financial performance in Zambian firms. Zambia Journal of Business and Management, 10(1): 90-105.
Nairobi Securities Exchange. 2020. NSE Annual Report 2020. https://www.nse.co.ke
Natalie, M. 2023. Kenya’s GDP rebounds amid post-COVID recovery. Kenya Business Daily. https://www.businessdailyafrica.com
Ngoc, T. 2018. The impact of preference share capital on profitability: Evidence from listed logistic companies in Vietnam. Journal of Economics and Development Studies, 6(2): 23–36. https://doi.org/10.15640/jeds.v6n2a3
Omorokunwa, O. 2018. Foreign portfolio diversification and financial performance. International Journal of Finance and Banking Research, 4(3): 51–61.
Orichom, D., and M. Omeke. 2021. Credit risk management, capital structure, and financial performance of MFIs in Uganda. Journal of Economics and Financial Analysis, 7(1): 88–103. https://doi.org/10.3906/eco-2104-01
Safari, A., M. Emadi, M. Ebrati, and S. Balasang. 2016. The effect of capital structure on firm performance: Evidence from Tehran Stock Exchange. International Journal of Business Management, 11(5): 147–155. https://doi.org/10.5539/ijbm.v11n5p147
Trochim, W. M. 2016. Research methods: The essential knowledge base. Cengage Learning.
Wicks, A. C., and J. S. Harrison. 2017. Stakeholder theory, value, and firm performance: Reassessing the link. Business Ethics Quarterly, 27(3): 373–399. https://doi.org/10.1017/beq.2017.10
Yoon, S. M., J. Lee, and T. Kim. 2023. The relationship between preference share capital and firm performance in the technology sector. Journal of Business Research, 142: 792-805.
Zakhem, A. J., and D. Palmer. 2017. Stakeholder theory and corporate governance reform: An integrative perspective. Journal of Business Ethics, 146(3): 473–485. https://doi.org/10.1007/s10551-015-2932-8
Published
How to Cite
Issue
Section
