The Influence of Capital Structure on the Performance of Manufacturing Companies: Empirical evidence from listed companies in East Africa

Abstract

This paper evaluates the influence of capital structure on the performance of manufacturing companies listed in various stock exchanges in East Africa. This study used panel secondary data, where the financial statements of 12 manufacturing companies were selected from (2005-2012). Data analysis was done using multiple regression analysis which established the relationship between performance expressed by Return on Assets (ROA), Return on Equity (ROE) and Earnings per Share (EPS) and capital structure which was represented by Long Term Debts to Total Capitalization (LTDTC)/ (gearing), Short Term Debts to Total Assets (STDTA), Long Term Debts to Total Assets (LTDTA), Debt to Equity (TDE) and Interest cover (IC). The study confirmed statistically a significant negative relationship between profitability and capital structure using ROA however the remaining profitability measures ROE and EPS showed insignificant relationship with capital structure. It is recommended that manufacturing companies in East Africa should strive to maintain low leverage so as to be profitable.

Keywords: Capital Structure, Performance, Listed Manufacturing Companies