EFFECT OF CAPITAL STRUCTURE ON FINANCIAL PERFORMANCE OF SMALL TIERED DEPOSIT TAKING SAVINGS AND CREDIT COOPERATIVES SOCIETIES IN NAIROBI COUNTY

Abstract

Purpose: The study is focused to determine the effects of capital structure on financial performance of small tiered deposit taking savings and credit cooperatives societies (DTS) in Nairobi County. Methodology used:  systematic review research design. It involved the evaluation of relevant studies that address the dependent and independent variables using specific criteria. Major findings and conclusions: The reviewed studies indicated that a conceptual framework gap exists. Empirical literature does not offer conclusive results on the nature of relationship between capital structure and financial performance. In addition, the studies were conducted for other prior periods and in other markets presenting a contextual gap. Unique contribution to theory, practice and policy: The study used the pecking order theory to put forth the preference of external funds (debt) over internal funds (equity), in making capital structure decisions, in addition to the trade-off theory, which indicated to mutual exclusivity of debt and equity financing decisions. The study will be beneficial to deposit taking SACCOs in Kenya to adopt capital structure strategies to sustain consistent superior financial performance. The models developed from this study will aid the regulatory institutions that regulate DTS in Kenya to develop policies on Capital structure. The study will add new knowledge on capital structure and financial performance of DTS