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Abstract:
Background:
Theoretically, debt financing is expected to have beneficial impacts on
operational efficiency as a result of improved cash flow and smoothened
operations. However, this is not usually the case and it can be a detriment to
operational efficiency due to problems related to moral hazard and agency
costs. The purpose of this study was to examine the effect of debt financing,
liquidity and company size on the operational efficiency of firms listed at Nairobi Securities Exchange (NSE), in
Kenya. Methods: The
research focused on 50 firms listed on the (NSE) as at December 2022 and
collected panel data ranging between 2015 and 2022. Descriptive statistical analysis and random effects
regression model were used in analysis. Findings: Debt financing has a
significant positive effect on operational efficiency (β = 0.355, p <
0.001), indicating that firms relying more on debt financing tend to have
higher operational efficiency. Similarly, liquidity exhibits a significant
positive relationship with operational efficiency (β= 0.079, p < 0.002),
while company
size demonstrated a significant negative association with operational
efficiency (β= -0.075, p < 0.001). Conclusion and Implications: Debt financing has beneficial effects on operational
efficiency. Thus, company managers should recognize debt financing as a
strategic tool for improving operational efficiency. Similarly, liquidity has
the positive and significant effect on operational efficiency. Therefore, the
management of companies listed at NSE should regularly assess their liquidity
positions and ensure that they have sufficient working capital to meet
short-term obligations and capitalize on strategic opportunities. On the
contrary, company size, has negative and significant effect on operational efficiency of firms listed at NSE.
Thus, larger firms listed at NSE should proactively address the challenges
associated with maintaining operational efficiency as they grow in size.
Strategies aimed at optimizing operational processes and resource allocation
should be implemented to counteract potential diseconomies of scale.
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