Abstract:
Many corporate companies have been struggling to survive because of how various financial
decisions are made. Corporate failure among Kenya’s listed non-financial firms has often
been associated with the financing decisions undertaken by the management. Efforts to revive
or liquidate the ailing companies have focused on financial restructuring. The great dilemma
for management has been to maintain an optimal capital structure and to establish how
various capital structure decisions affect the performance of these companies. The research
period was between 2016 to 2022.During this period scores of listed companies such as
Mumias Sugar company, Uchumi Supermarket, ARM Cement (Arthi River Mining),
Deacons Africa, Samia Africa and Kenya Airways experienced huge losses leading to
suspension and delisting from the NSE.This presented a fascinating period of study
considering the challenges of the business circle. Therefore, this study examined the
relationship between Capital structure, Corporate Governance and Financial performance of
non-financial real sector firms listed at NSE,Kenya. The specific objectives were: to
determine the effect of retained earnings on financial performance of real sector non–
financial firms listed in NSE; to determine the effect of debt financing on financial
performance of real sector non–financial firms listed in NSE; to establish the effect of equity
financing on financial performance of real sector non-financial firms listed in NSE; and to
examine the moderating role of corporate governance on the relationship between capital
structure composition and financial performance of real sector non-financial firms listed in
NSE. The main theory of the study was the pecking order theory. The study was anchored in
the positivism research paradigm enabling the use of the quantitative panel data research
design. The target population comprised 51 firms listed in the Nairobi Security Exchange,
Kenya. The sample size of 42 real sector non-financial listed firms was chosen using the
purposive sampling technique. The data was collected for 7 years starting from the year 2016
to 2022. The Hausman test revealed that the random effects model was suitable for modeling
the direct effects while the fixed effects model was ideal for moderation. Results of the direct
effects revealed that capital structure domains of debt financing and equity financing had
positive and significant effects on financial performance of listed real sector non-financial
firms. However, earnings per share had a positive but non-significant effect. Moreover,
corporate governance positively and significantly moderated the relationship between capital
structure and financial performance. As a contribution to knowledge, the study concluded that
corporate governance is an avenue through which listed non-financial firms can boost the
effect of corporate culture on their financial performance. The study recommends robust
corporate governance practices alongside capital structure, which are vital in enabling nonfinancial
firms to adapt to changing market dynamics and governance standards effectively.
