INFLUENCE OF SHARE CAPITAL AND PREFERRED STOCK ON FINANCIAL PERFORMANCE OF BANKS LISTED IN THE NAIROBI SECURITIES EXCHANGE, KENYA
DOI:
https://doi.org/10.47941/ajss.804Abstract
Purpose: The purpose of this paper was to examine the influence of share capital and preferred stock on the financial performance of listed banks in Nairobi Securities Exchange (NSE).
Methodology: The study adopted a cross-sectional survey research design. It targeted all the eleven commercial banks listed at the NSE. The research used a datasheet to collect secondary data. This implies that the study entirely used secondary data, which was obtained from the financial records of the targeted banks. The study used census, meaning that all the banks listed in the NSE were included in the study. Data was analyzed using both descriptive and inferential statistics. Pearson's product moment correlation was used to indicate the hypothesized influence of share capital and preferred stock on financial performance. The findings were organized, summarized and presented using tables and charts.
Results: Correlation results indicated a strong positive relationship of r=0.873 and P=0.000 between share capital and financial performance, as well as a strong positive relationship at r=0.851 and P=0.001 between preferred stock and financial performance. The study concluded that the banks' financial performance was dependent on their share capital which was used as a source of equity financing. The more a bank injects share capital into its finances, the more likely it will improve its overall financial performance. The study recommended the use of share capital as source of equity financing in commercial banks as it is an efficient source of financing to such institutions.
Unique Contribution to Theory, Practice & Policy: The study contributed theory by indicating that the value or performance of firms does not solely depend on internal sources but some combination of both internal and external sources could be necessary. As such banks and their management should look for the best combination and optimal levels of internal and external financing that would steer their firms to success.
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