International Journal of Humanities and Social Science

ISSN 2220-8488 (Print), 2221-0989 (Online) 10.30845/ijhss

Effect of Cost of Capital on Financial Performance: A Case Study of Listed Commercial Banks at the Nairobi Securities Exchange Market
Charles Odongo Omwanza

Commercial banks listed at the Nairobi Securities Exchange (NSE) play crucial role in developing the economy of Kenya. The firms provide benefits in terms of job creation, driving innovation, economy’s cluster development, economic multipliers, and knowledge spill-over. Given their importance in the nation’s economy, it is imperative to explore the effects of cost of capital on their financial performance. This was done using a sample of eleven commercial banks listed at the NSE during the five-year period, 2012-2016. Data for the selected commercial banks were generated and analysed using a linear regression technique. The outcome of the study reveals that commercial banks’ cost of capital has significant effect on their financial performance (i.e. return on assets, ROA). The study recommends that commercial banks should utilise opportunities created by NSE to access long-term financing since debt financing carries costs that have effect on their financial performance.

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