Capital structure and the financial performance of non-financial companies listed on the Uganda Securities Exchange (USE)

Abstract

The study investigated the effect of capital structure on financial performance of the non-financial firms listed on the USE for a five-year period for the period 2015 – 2019. The study adopted a descriptive design which usually describes the phenomena or event under study. Data was collected from the Company annual reports for the five years 2015 to 2019 and analyzed using descriptive statistics which includes the use of standard deviation and means. Inferential statistics included Pearson correlation, linear regression, and ANOVA. Performance was measured by 2 accounting measures of ROA and ROE whereas three variables were used as proxies for capital structure were STDTA, LTDTA and TDTA. Size was used as a control variable for firms. The study used panel regression and data was analyzed using Ms Excel 2016. The study finds that STDTA had no significant relationship with ROA and but a positive and significant relationship with ROE. The study also finds a no significant relationship between LTDTA and ROA and no significant relationship between LTDTA and ROE. It also finds no significant relationship between TDTA and ROA but a positive and significant relationship between TDTA and ROE. The study concludes that for the non-financial firms listed on the USE, only STDTA and TDTA had a positive and significant relationship with performance as measured by ROE. On the other hand, the study is inconclusive on whether more or less of debt in the capital structure is necessary if Managers want to improve performance as measured by ROA. Size of the firm contributed positively but insignificantly to this overall effect. The study concludes that firms should employ more of short-term debt in their capital structures to improve performance. The findings of the research seem to be in support of M&M’s alternative proposition theory of 1963