Effects of Debt Financing on Financial Performance of Manufacturing Firms in Kenya

Immaculate Wayua  Naomi

doi:10.59413/

Authors

Immaculate Wayua Naomi Author

DOI:

https://doi.org/10.59413/

Keywords:

Financial Performance, Trade credit, Debentures, Long term Loan, Manufacturing firms

Abstract

This study examines the conditions associated with long-term debt financing, including the obligation to repay borrowed funds on predetermined dates, the interest rate, loan duration, leverage level, and interest coverage ratio. Debt financing, being a crucial element in the growth and sustainability of businesses, has the potential to influence the outcome of financial performance in a variety of ways. The research commences by carefully analyzing the circumstances that are typically linked with long-term debt financing, which emphasizes the duty to repay any borrowed funds on predetermined future dates. Additionally, the study highlights the influential factors that may come into play, including but not limited to the interest rate charged on loans, loan duration, leverage level, and interest coverage ratio. A comprehensive review of the empirical literature provides valuable insights into the relationship between debt financing and financial performance. While some studies seem to suggest positive outcomes, such as increased profitability, others bring to the forefront the potential negative consequences that may arise, such as agency problems, information asymmetry, and financial distress costs. This study acknowledges the research gaps that exist within the current literature and emphasizes the importance of delving deeper into the specific impact that debentures, trade credit, and loans may have on the financial performance of manufacturing firms in Kenya.

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