LONG TERM DEBT AND FINANCIAL PERFORMANCE OF COMMERCIAL STATE CORPORATIONS IN KENYA

Abstract

Commercial state corporations play essential role in enhancing public service delivery and meeting the needs of the people, as well as creation of employment opportunities. In Kenya, Commercial state corporations have been experiencing decrease in their profitability in terms of profit after tax and also ROA for the past five years. The general objective of the study was to examine the effect of long term debt on the financial performance of commercial state corporations in Kenya. This study was anchored on Modigliani and Miller (MM) theory. An explanatory research design was adopted in this study. The target population was 26 commercial state corporations distributed in different parts of Kenya. Since target population is small, census method was utilized and hence the entire population will be included during the study. Further, this research made use of secondary panel data. The secondary data covering period of 10 years from 2012 to 2021, was gathered from Office of Auditor General Website and individual companies annual reports. In data analysis, inferential and descriptive statistics were utilized and STATA version 14 was used in statistical analysis. Further, descriptive statistics encompassed frequency distributions, mean, percentages, variances and standard deviation. The inferential statistics were conducted by employing panel regression analysis. Additionally, the findings of the study were displayed in figures and tables. The study found that long term debt has significant positive effect on Kenya commercial state corporations? financial performance. This denotes that enhancement in long term debt would increase commercial state corporations? financial performance in Kenya. Therefore, the study recommends that the management of commercial state corporations should use long term debt to fund varied investments with longer paying periods. Long-term debt is typically less susceptible to short-term setbacks because it is protected by contractual restrictions. The financing accounts of long term debt also require less maintenance and monitoring than short term debt financing, such as supplier credit, which requires constant monitoring because it fluctuates over time.