Effect of Financial Structure on Financial Performance of Listed Commercial Banks in Kenya

Abstract

The purpose of the study was to determine the effect of financial structure on financial performance of listed commercial banks in Kenya. Specifically, the study sought to: establish the effect of retained earnings on financial performance of listed commercial banks in Kenya, determine the effect of short term debt on financial performance of listed commercial banks in Kenya, establish the effect of long term debt on financial performance of listed commercial banks in Kenya and assess the effect of share capital on financial performance of listed commercial banks in Kenya. Panel research design was adopted and targeted all the eleven (11) listed commercial banks in Kenya for a period between 2015 and 2019. Census approach was adopted in researching all the 11 listed commercial banks in Kenya. With the aid of STATA software, data was analyzed using descriptive statistics and panel regression analysis. The findings revealed that retained earnings positively and significantly affected financial performance of commercial banks, there was a positive but insignificant relationship between short term debt and financial performance; the study also found that long term debt positively and significantly influenced financial performance of listed commercial banks in Kenya. Finally, the study established that there was a positive and significant relationship between share capital and financial performance of listed commercial banks in Kenya. The study concluded that financial performance of listed commercial banks in Kenya had been erratic between the year 2015 and 2019 in which some banks had been registering rising return on assets as others register declining financial performance in terms of return on assets. It was thus recommended to the management of listed commercial banks in Kenya that they should strive to make sound and well informed decisions when it comes to the financial structure they settle for in financing operations in their banks. Keywords: Financial, Structure, Performance, Retained earnings, short term debt, Long term debt, Share capital.