Corporate Debt and Preservation of Going Concern Status for Companies Listed in the Nairobi Securities Exchange, Kenya

Abstract

Going concern is important because it determines an entity’s life in the foreseeable future. However, a company under receivership draws concern from the investor as the ability of recovering their investment is questionable. This study aimed to investigate the effect of corporate debt on preservation of going concern status of companies listed in the Nairobi Securities Exchange, Kenya. The study utilized causal research design. Target population was 36 listed companies. Data was analyzed using descriptive and regression statistics. The study found a negative and significant relationship between the cost, size, and duration of corporate debt issued and the Nairobi Securities Exchange firms' ability to continue as a going concern. The study concluded that a rise in market interest rates would make it harder for Nairobi Securities Exchange companies to continue as a going concern.  A rise in interest rates would also raise a company's cost of capital, which would reduce its predicted future profitability. Selecting an appropriate debt maturity structure helps NSE-listed companies prevent mismatch by balancing assets and obligations, handle agency-related issues, reduce the negative effects of cost of capital, and communicate the quality of the company's earnings. In order to preserve stability and competitiveness, central banks should take trade dynamics and international economic conditions into account while deciding on the best interest rate policy. When enacting interest rate increases, policymakers should carefully weigh the possible effects and use a comprehensive approach. Policy makers from NSE-listed companies should create guidelines and regulations pertaining to debt management inside their respective firms. As the regulatory body, the CMA should create appropriate debt management guidelines for the listed commercial and service companies.