George Gikama Muthoni, Tabitha Merepei Nasieku, Tobias Olweny


The objective of this paper was to determine the mediating effect of capital structure on the relationship between ownership structure and financial performance of non-financial firms listed on the NSE. The target population was forty-two firms; however, only thirty-five firms had consistency of data for a balanced panel regression for the period 2008-2017. The study adopted longitudinal quantitative research design with random-effects GLS and fixed effects models. The ownership structure was measured using managerial, institutional, government and retail ownerships while capital structure was measured using leverage ratio. In addition, financial performance was proxed by ROCE and Tobin’s Q. The analysis revealed that the capital structure has no significant mediating influence on managerial, government, and retail ownerships and financial performance. However, the study confirmed that there is a significant partial mediating effect of capital structure on the relationship between institutional ownership and quoted firm’s financial performance. The study recommends that the government should introduce initiatives that are aimed at attracting more investors since the current market is dominated by institutional investors. Finally, the study confirms stakeholders, stewardship and pecking order theories and rebuts capital structure irrelevancy and agency theories.


JEL: D24, O16, O16


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mediating effect, capital structure, ownership structure, Tobin’s Q and Return on Capital Employed (ROCE)

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