The Asymmetric Effect of Foreign Debt Investment on the Growth of Firms Listed at the Nairobi Securities Exchange (NSE): A NARDL Approach.

Abstract

This study examines asymmetric effect of foreign debt investment on the growth of firms listed at Nairobi Securities Exchange (NSE) using Nonlinear Autoregressive Distributed Lag (NARDL) method. The study was based on a sample of 40 listed companies spread across 12 sectors on the NSE such as the banking, insurance, investment, manufacturing, agriculture, energy and petroleum, telecom and technology, construction and allied services, automobile and accessories, commercial and services, exchange-traded funds (ETFs) and real estate investment trusts (REITs). The study recognises that the increase and decrease of foreign debt investment can have differing effects on business growth and therefore an asymmetric approach is needed. Short run and long run relationships between foreign debt investment and firm growth are considered by analyzing the secondary data obtained from the annual financial reports and data from the NSE publications. The NARDL model is divided into partial sums of foreign debt, with positive effects and negative effects, which although not captured by conventional linear models can be identified. The results will yield strong empirical evidence of the impact of foreign debt on growth of NSE listed firms. The paper contributes to the emerging market's capital structure and firm performance literature and offers the way for corporate managers, foreign investors and policy makers faced with the challenge of making sound investments decisions in the face of foreign financing and minimizing financial risks from foreign borrowing.

Keywords: Foreign Debt Investment, Firm Growth, Nairobi Securities Exchange, NARDL Model, Capital Structure, Asymmetric Effects, Listed Firms.

DOI: 10.7176/RJFA/17-3-03

Publication date: July 30^th 2026