Determinants of Cost of Capital: Kenyan context

George Onyiego Kengere; Manasseh Njagi; Patricia Luvuno Chonga; Charles Guandaru Kamau

doi:10.59413/eajf/v1.i1.1

Authors

George Onyiego Kengere Postgraduate Student, Department of Business Administration, Technical University of Mombasa Author
Manasseh Njagi Postgraduate Student, Department of Business Administration, Technical University of Mombasa Author
Patricia Luvuno Chonga Author
Charles Guandaru Kamau Senior Lecturer, Department of Accounting and Finance, Technical University of Mombasa Author https://orcid.org/0000-0002-8085-0421

DOI:

https://doi.org/10.59413/eajf/v1.i1.1

Keywords:

Capital Arrangement, Cost of Capital, Profitability, Liquidity, Leverage

Abstract

The purpose of this paper was to look at the determinants of the cost of capital for a firm. The study conducted a literature review with the goal of identifying the factors that influence the cost of capital for a firm. The research showed that profitability, liquidity, tax, growth, size, and age of the company are among the major determinants that influence the cost of capital for a firm. Further the research showed a positive correlation between the cost of capital and profitability, liquidity, growth, size, and age of the company. The capital arrangement of a firm is determined on account of the pecking order theory and trade-off theory while bearing in mind the cost elements associated with it. In Kenya, economic stability and political stability are the primary determinants that determine the cost of capital for a firm. This determining factor influences the availability and cost of credit offered by financial institutions in Kenya.

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