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Examining the Role of Capital Structure in Financial Performance in Kenyan Banks: Comparative Evidence from Equity Group, KCB Group, and Stanbic Kenya

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  • Arnold Omondi Olunja

    (United States International University – Africa-Chandaria School of Business)

Abstract

This study examined the role of capital structure in financial performance among Kenyan banks, focusing on Equity Group, KCB Group, and Stanbic Kenya over the financial years 2021–2023. The study aimed to analyse the relationship between capital structure and profitability, assess its impact on financial stability, investigate the effects of agency costs on capital structure decisions, and develop strategic recommendations for optimal capital management. The research was grounded in the Modigliani-Miller Theory, Trade-Off Theory, Pecking Order Theory, and Agency Theory, which provided a theoretical framework for understanding capital structure decisions in the banking sector. A quantitative research design was adopted, utilising secondary financial data from audited financial statements and regulatory reports. Regression analysis was conducted using SPSS to establish the relationship between debt-to-equity ratios, Return on Equity (ROE), and Return on Assets (ROA).

Suggested Citation

  • Arnold Omondi Olunja, 2025. "Examining the Role of Capital Structure in Financial Performance in Kenyan Banks: Comparative Evidence from Equity Group, KCB Group, and Stanbic Kenya," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(3), pages 2387-2405, March.
    • Handle: RePEc:bcp:journl:v:9:y:2025:issue-3:p:2387-2405
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    References listed on IDEAS

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    3. Kraus, Alan & Litzenberger, Robert H, 1973. "A State-Preference Model of Optimal Financial Leverage," Journal of Finance, American Finance Association, vol. 28(4), pages 911-922, September.
    4. Naveed Ahmed & Talat Afza, 2019. "Capital structure, competitive intensity and firm performance: evidence from Pakistan," Journal of Advances in Management Research, Emerald Group Publishing Limited, vol. 16(5), pages 796-813, June.
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