IDEAS home Printed from https://ideas.repec.org/a/bcp/journl/v9y2025issue-8p4719-4734.html

Debt Financing and Financial Performance: Evidence from Listed Non-Financial Firms in East Africa Community

Author

Listed:
  • John Kanji

    (Department of Finance and Accounting, Faculty of Business and Management Science, University of Nairobi, Kenya)

  • Duncan Elly Ochieng’

    (Senior Lecturer, Department of Finance and Accounting, Faculty of Business and Management Science, University of Nairobi, Kenya)

  • Herick Ondigo

    (Senior Lecturer, Department of Finance and Accounting, Faculty of Business and Management Science, University of Nairobi, Kenya)

  • Helen Kinyua

    (Lecturer, Department of Finance and Accounting, Faculty of Business and Management Science, University of Nairobi, Kenya.)

Abstract

The purpose of this study was to investigate the influence of debt financing on financial performance among East African Community-listed non-financial enterprises. To achieve this goal, secondary data was collected from four East African nations. Throughout the 2011–2020 study periods, the research employed an explanatory research design. The study operationalized debt financing by debt/assets ratio and debt/equity ratio. Financial performance was operationalized by return on assets (ROA) and earnings per share (EPS). Results showed that debt/assets proportion significantly influences financial performance in Kenya, Rwanda, Tanzania, and Uganda. It was also revealed that in Rwanda debt to assets influences earnings per share while it does not influence in Kenya, Tanzania, and Uganda. Thus, the hypothesis that there exists no substantial link amongst debt/asset ratio and financial performance among listed non-financial firms in the East Africa Community was rejected in terms of debt/assets ratio but supported in terms of earnings per share. The study's findings have expanded our understanding of previously uncharted territory. It validates theories of financial management that suggest concepts related to debt financing and financial performance. It is suggested that future study concentrate on non-East African Community nations. By doing so, it will be possible to ascertain whether the study's conclusions apply to other parts of Africa.

Suggested Citation

  • John Kanji & Duncan Elly Ochieng’ & Herick Ondigo & Helen Kinyua, 2025. "Debt Financing and Financial Performance: Evidence from Listed Non-Financial Firms in East Africa Community," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(8), pages 4719-4734, August.
    • Handle: RePEc:bcp:journl:v:9:y:2025:issue-8:p:4719-4734
    as

    Download full text from publisher

    File URL: https://www.rsisinternational.org/journals/ijriss/Digital-Library/volume-9-issue-8/4719-4734.pdf
    Download Restriction: no
    File URL: https://rsisinternational.org/journals/ijriss/articles/debt-financing-and-financial-performance-evidence-from-listed-non-financial-firms-in-east-africa-community/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Dimitris Margaritis & Maria Psillaki, 2007. "Capital Structure and Firm Efficiency," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(9‐10), pages 1447-1469, November.
    2. repec:bla:jfinan:v:44:y:1989:i:1:p:19-40 is not listed on IDEAS
    3. La Rosa, Fabio & Liberatore, Giovanni & Mazzi, Francesco & Terzani, Simone, 2018. "The impact of corporate social performance on the cost of debt and access to debt financing for listed European non-financial firms," European Management Journal, Elsevier, vol. 36(4), pages 519-529.
    4. Marsh, Paul, 1982. "The Choice between Equity and Debt: An Empirical Study," Journal of Finance, American Finance Association, vol. 37(1), pages 121-144, March.
    5. Cole, Rebel A. & Sokolyk, Tatyana, 2018. "Debt financing, survival, and growth of start-up firms," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 609-625.
    6. Ivo Welch, 2004. "Capital Structure and Stock Returns," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 106-131, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wei He & Qian Wang, 2020. "The peer effect of corporate financial decisions around split share structure reform in China," Review of Financial Economics, John Wiley & Sons, vol. 38(3), pages 474-493, July.
    2. Brennan, Michael J. & Kraft, Holger, 2016. "Leaning against the wind: Debt financing in the face of adversity," SAFE Working Paper Series 119, Leibniz Institute for Financial Research SAFE, revised 2016.
    3. Elmina Homapour & Larry Su & Fabio Caraffini & Francisco Chiclana, 2022. "Regression Analysis of Macroeconomic Conditions and Capital Structures of Publicly Listed British Firms," Mathematics, MDPI, vol. 10(7), pages 1-28, March.
    4. Syed Manzur Quader & Mohammad Nayeem Abdullah, 2020. "How financial market in Bangladesh appraises efficiency?," Economic Change and Restructuring, Springer, vol. 53(3), pages 475-494, August.
    5. Ravid, S. Abraham & Venezia, Itzhak & Ofer, Aharon & Pons, Vicente & Zuta, Shlomith, 2007. "When are preferred shares preferred? Theory and empirical evidence," Journal of Financial Stability, Elsevier, vol. 3(3), pages 198-237, October.
    6. Antonczyk, Ron Christian & Salzmann, Astrid Juliane, 2014. "Overconfidence and optimism: The effect of national culture on capital structure," Research in International Business and Finance, Elsevier, vol. 31(C), pages 132-151.
    7. Islam, Silvia Z. & Khandaker, Sarod, 2015. "Firm leverage decisions: Does industry matter?," The North American Journal of Economics and Finance, Elsevier, vol. 31(C), pages 94-107.
    8. Malcolm Baker & Richard S. Ruback & Jeffrey Wurgler, 2004. "Behavioral Corporate Finance: A Survey," NBER Working Papers 10863, National Bureau of Economic Research, Inc.
    9. Rashid Ameer, 2007. "What Moves the Primary Stock and Bond Markets? Influence of Macroeconomic Factors on Bond and Equity Issues in Malaysia and Korea," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 3(1), pages 93-116.
    10. Maclachlan, Iain C, 2007. "An empirical study of corporate bond pricing with unobserved capital structure dynamics," MPRA Paper 28416, University Library of Munich, Germany.
    11. Zhaoxia Xu, 2007. "Do Firms Adjust Toward a Target Leverage Level?," Staff Working Papers 07-50, Bank of Canada.
    12. Martin Falk & Robert Steiger, 2018. "An Exploration of the Debt Ratio of Ski Lift Operators," Sustainability, MDPI, vol. 10(9), pages 1-16, August.
    13. Flannery, Mark J. & Rangan, Kasturi P., 2006. "Partial adjustment toward target capital structures," Journal of Financial Economics, Elsevier, vol. 79(3), pages 469-506, March.
    14. Li, Larry & Islam, Silvia Z., 2019. "Firm and industry specific determinants of capital structure: Evidence from the Australian market," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 425-437.
    15. Cooper, Ian A. & Lambertides, Neophytos, 2018. "Large dividend increases and leverage," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 17-33.
    16. Hung, Jessica & Chang, Vincent Y. L., 2018. "The analysis of capital structure for propertyliability insurers: A quantile regression approach," Business and Economic Horizons (BEH), Prague Development Center, vol. 14(4), pages 829-850, August.
    17. Peng Huang & Yue Lu & Robert Faff, 2021. "Social trust and the speed of corporate leverage adjustment: evidence from around the globe," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(2), pages 3261-3303, June.
    18. Hong-Yi Chen & Cheng Few Lee & Tzu Tai, 2020. "The Joint Determinants of Capital Structure and Stock Rate of Return: A LISREL Model Approach," World Scientific Book Chapters, in: Cheng Few Lee & John C Lee (ed.), HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING, chapter 35, pages 1345-1397, World Scientific Publishing Co. Pte. Ltd..
    19. Paul Borochin & Jie Yang, 2016. "Options, Equity Risks, and the Value of Capital Structure Adjustments," Finance and Economics Discussion Series 2016-097, Board of Governors of the Federal Reserve System (U.S.).
    20. Abdullah, Hariem & Tursoy, Turgut, 2021. "Capital structure and firm performance: a panel causality test," MPRA Paper 105871, University Library of Munich, Germany.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bcp:journl:v:9:y:2025:issue-8:p:4719-4734. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr. Pawan Verma (email available below). General contact details of provider: https://rsisinternational.org/journals/ijriss/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.