Leverage and Financial Performance of Non-Financial Firms Listed on the Nairobi Securities Exchange (NSE)

Abstract

Purpose: This article examines the effect of leverage on the financial performance of non-financial firms listed on the Nairobi Securities Exchange. Design/Methodology/Approach: The article used panel data from the listed non-financial companies in secondary data format for a period of 34 years (2014-2023), yielding 340 firm-year observations. The descriptive statistics, diagnostic tests, correlation analysis, and fixed-effects regression were used. The return on assets (ROA) evaluates financial performance.  Findings: The financial performance had a negative and significant correlation with leverage. The negative coefficient for the bivariate fixed-effects model was -0.123256 with a p-value of 0.000, and for the adjusted firm-characteristics model, it was -0.51321 with a p-value of 0.039. Implications/Originality/Value: The results demonstrate that debt reliance reduces profitability for non-financial firms when they come under interest pressure, under repayment burden, and are subjected to operating risk. The managers should not be reckless and should make financing decisions that do not exceed their ability to generate income, backed by cash flow tests.