Studying the Effect of Financial Leverage on Financial Performance: A Case Study of Listed Commercial Banks at the Nairobi Securities Exchange Market

Commercial banks listed at the NSE are important to the growth of Kenyan economy but currently facingloaning and unprecedented customers’ withdrawal challenges, which has seen commercial banks such asChase Bank placed under receivership. The objective of this study was to examine the effect of financialleverage on financial performance of commercial banks listed at the NSE, using a five-year data ۲۰۱۲-۱۶.Data for the selected commercial banks were generated and analysed using a linear regression technique.The outcome of the study reveals that commercial banks’ debt ratio has significant effect on theirfinancial performance (i.e. return on assets, ROA). The result of the findings depicts concurs with studiesby Njeri and Kagiri (۲۰۱۳), Gweyi, Minoo and Luyali (۲۰۱۳), and Abubakar (۲۰۱۵) but discredits thefindings made by Hasanzadeh et al (۲۰۱۵) and Modigliani Miller (M.M) theory. The study recommendsthat commercial banks should utilise debt financing to improve return of assets or profitability.

Keywords:

NSE , CBK , financial leverage , financial performance , commercial banks