Abstract: This research paper examined the effect of leverage on stock returns. All manufacturing and allied firms listed at the NSE as at 2015 were considered for this research. Kenya has a huge manufacturing sector that serves both the local market and exports mostly to the East African region. A number of NSE listed companies in Kenya, including those in the manufacturing and allied sector such as Mumias Sugar Limited have over the last few years been struggling to remain in business despite having taken up huge debts from financial institutions. As a result, shareholders including the government have tried to intervene by injecting new capital from time to time in a bid to boost their productivity and financial performance and prolong their going concern. Some firms have persistently shown worsening trends of their annual losses when huge capital is invested from external sources. These challenges have incidentally led to loss of investors’ wealth and confidence in the stock market. Investment managers thus need to protect interests of the stakeholders by ensuring optimum levels of leverage are maintained. This study thus seeks to satisfy the following general research objective: Examine the effect of leverage on Stock return. It narrowed down further to analyze the impact of financial leverage on stock returns; examine how operating leverage affects stock returns; how composite leverage affects stock return at both firm and industry level. This study used secondary data collected from the Nairobi Securities Exchange and published financial statements of the listed firms for the period (2011-2015). Multiple regression methods was used to model the relationship between the two variables. The study established a significant relationship between leverage and stock return. Financial Leverage had positive effect, Operating Leverage had positive effect, and Composite leverage had negative effect.
Title: EFFECT OF LEVERAGE ON STOCK RETURNS AT NAIROBI SECURITIES EXCHANGE: CASE OF MANUFACTURING AND ALLIED FIRMS
Author: ALEXANDER MUTUKU MUMINA, DR. TOBIAS OLWENY, MR. GORDON OPUODHO
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
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