Relationship Between Leverage and Financial Performance of Agricultural Firms Listed in Nairobi Securities Exchange .

Abstract

The study assessed the relationship between leverage and financial performance of agricultural firms listed in Nairobi Securities Exchange. The study applied correlational research design which was used to describe the various components of the study as well as the quantitative research design with the aim of identifying the relationship between the independent variables and the dependent variable. This is so because quantitative secondary data was collected from the NSE annual reports where the means, standard deviations, variances, correlation analysis and linear regression analysis were performed. The target population of the study consisted of all the seven firms listed at NSE, Kenya under agricultural sector. The analysis of the relationship between leverage and financial performance, measured by return on equity (ROE), revealed an inverse relationship with a coefficient of -1.939. This negative coefficient indicated that as leverage increased, financial performance tended to decrease, albeit insignificantly. The p-value for leverage was 0.824, which was well above the standard significance thresholds (p < 0.05 or p < 0.1). This lack of statistical significance implied that leverage did not have a meaningful impact on the financial performance of the agricultural firms listed on the Nairobi Securities Exchange (NSE). The study recommended that Firms should focus on maintaining an optimal debt-to-equity ratio that balances growth with financial stability. Financial managers should assess the potential risks and returns associated with debt and explore alternative financing options, such as equity financing, to support sustainable growth.