Assessing the effects of capital structure on performance of non-financial firms listed on the ZSE (2010 – 2016)

Abstract

All firms have to make a decision on how to finance their operations. A firm can use retained profit or borrow from financial institutions, or offer securities and shares. Each source of funds has its own advantages and disadvantages. The proportion of debt to equity applied by firms determines the capital structure of a firm. This study therefore investigated the relationship between capital structure and the performance of non-financial companies listed on the Zimbabwe Stock Exchange (ZSE). The study employed an explanatory non- experimental research design. A census of 9 non-financial firms listed on the ZSE, was taken,. The study used secondary panel data contained in the annual reports and financial statements of listed non-financial companies’ .The study applied panel data model (fixed effects). Fixed effects least squares regression results revealed that financial leverage had a statistically significant negative association with performance as measured by return on equity (ROE). The study recommended that managers of listed non-financial companies should reduce the reliance on long term debt as a source of finance and also recommended that the government should regulate financial institutions so as to reduce the cost of borrowing.