INFLUENCE OF CAPITAL STRUCTURE ON FINANCIAL PERFORMANCE OF INSURANCE COMPANIES IN KENYA

Abstract

Capital structure is the mix between equity and debt that finances the assets and operations of the firm (Nassar, 2016). The mix of equity and debt in the company?s balance sheet provides the firm with the WACC (weighted average cost of capital).The study established the?? influence of capital structure on financial performance of insurance companies in Kenya. The research embraced a correlational research style. A correlational study design is carried out to discuss the relationship in between variables (Saunders, Lewis & Thornill, 2009; Bryman & Bell, 2007; Cooper & Schindler, 2006). The target population for this study was the fifty-three insurance companies in Kenya who were operational in 2018 (IRA, 2018). The insurance companies which had undergone any form of consolidation were 21 while 32 had not engaged in any M&A activity. A correlational study design was carried out to discuss the relationship in between variables. This study planed and used additional data acquire both quantitative and qualitative for evaluation. The study found that 64% of variations in financial performance is due to changes in capital structure. The study concludes that capital structure decision is critical for any business organization due to the need of maximizing returns to various organizational components, and also because of the impact such a decision has on a firm's ability to deal with its competitive and volatile environment effectively. The study recommends that Insurance firms have a duty to have optimum capital structure to survive the turbulent business environment, a structure in consideration of prevalent financial conditions.