FINANCIAL STRUCTURE AND FINANCIAL PERFORMANCE OF COMMERCIAL BANKS LISTED AT NAIROBI SECURITIES EXCHANGE (NSE), KENYA

Abstract

Commercial banks play a critical role in the economic development of Kenya. As financial intermediaries, they mobilize savings from the public and channel these funds into productive investments, thereby supporting business growth and economic stability. However commercial banks listed at the Nairobi Securities Exchange often face difficulties in balancing their financial structure components, such as retained earnings, long-term debt, to enhance their financial performance. This study focused on evaluating the influence of financial structure on the financial performance of commercial banks listed at Nairobi Securities Exchange in Kenya. Specifically, the study sought to evaluate the influence of retained earnings on financial performance of commercial banks listed at Nairobi Securities Exchange in Kenya, to analyze the influence of long-term debt on financial performance of commercial banks listed at Nairobi Securities Exchange in Kenya. The study is guided by Residual Theory of Dividends, and Trade-Off Theory. The study employs a explanatory research design. The target population consists of all 11 commercial banks listed on the Nairobi Securities Exchange (NSE) as of December 2024 (NSE, 2024). The sampling frame includes the 11 listed commercial banks on the NSE. Financial data for these banks was sourced from their audited financial statements, ensuring accuracy and credibility. The study employed a census approach, including all 11 listed banks. Secondary data was collected using a structured data extraction sheet. Quantitative data was analyzed using panel regression analysis. Descriptive statistics such as mean, standard deviation, and percentages were summarize data patterns, while inferential statistics tested research questions. Findings were presented using tables, graphs, and charts for clarity and interpretability. The study concludes that retained earnings has a positive and significant effect on financial performance of commercial banks listed at Nairobi Securities Exchange, Kenya. Further, the study concludes that long-term debt has a positive and significant effect on financial performance of commercial banks listed at Nairobi Securities Exchange, Kenya. From the findings, the study recommends that the management of commercial banks in Kenya should pursue deliberate policies that strengthen and optimally structure their share capital by encouraging rights issues, bonus issues, and strategic equity injections that enhance capitalization without diluting shareholder value.

Key Words: Financial structure, retained earnings, long-term debt, financial performance, return on assets, commercial banks, Nairobi Securities Exchange, Kenya.