Long-Term Debt Financing and Financial Performance of Manufacturing and Allied Firms Listed on the Nairobi Securities Exchange, Kenya
DOI:
https://doi.org/10.70619/vol6iss9pp39-49-949Keywords:
Long-Term Debt Financing, Leverage, Financial Performance, Return on Assets, Manufacturing Firms, Nairobi Securities ExchangeAbstract
The manufacturing sector is a key pillar of Kenya's Vision 2030 and the Bottom-Up Economic Transformation Agenda, yet manufacturing and allied firms listed on the Nairobi Securities Exchange (NSE) continue to face declining profitability, stagnant growth, and rising debt levels. This study established the effect of long-term debt financing (LTDF) on the financial performance of manufacturing and allied firms listed on the NSE. The study was anchored in trade-off, pecking order, and agency theories and employed an explanatory, longitudinal research design using a quantitative panel data approach. A census of manufacturing and allied firms yielded a strongly balanced panel of nine firms with 99 firm-year observations, using secondary data from audited financial statements for 2015 to 2025. We measured long-term debt financing using the long-term debt ratio and financial performance using return on assets (ROA). Data were analysed in STATA (version 19) using descriptive statistics, Pearson correlation, and fixed-effects panel regression with firm-clustered robust standard errors. The study found that long-term debt financing had a negative and statistically significant effect on financial performance (β = −2.389, p < .001), with the model explaining 89.8% of the within-firm variation in ROA. The study concluded that overreliance on long-term borrowing undermines the profitability of listed manufacturing firms, as the interest and financial-distress costs of high leverage outweigh its benefits. It recommends that finance managers exercise restraint in using long-term debt, reserving borrowing for productive investments that generate returns above its cost, and that regulators monitor rising leverage as an early warning of financial distress.
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