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IMPACT OF CORPORATE DEBT ON DERIVATIVES USE: EVIDENCE FROM NAIROBI SECURITIES EXCHANGE


 

Salah Abdi Sheikh

Dr. Geoffrey Mouni Gekara

Dr. Willy Muturi

JKUAT, Kenya

East African University, Kenya

JKUAT

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CITATION: Sheikh,S. A., Gekara, G. M. & Muturi. W. Impact of Corporate Debt on Derivatives Use: Evidence From Nairobi Securities Exchange. International Journal of Finance and Accounting 4 (11),18-30.


ABSTRACT

The objective of this study is to analyze the impact of corporate debt on derivative use among firms listed at the Nairobi Securities Exchange. Data for this study was obtained through analysis of disclosures in annual reports of all the quoted companies for the years 2008-2012. A sample of 48% of the listed companies was included in the study. Data was analyzed using Multivariate Analysis because the dependent variable is categorical. Analysis with logistic regression was conducted on variables obtained through analysis of past literature. The basic hypothesis of the study was to test whether there is statistical significance to support leverage, financing cost and Financial Distress as proxies for Corporate Debt. None of predictor variables was found to be statistically significant. The use of derivatives is not related to Leverage, Financing cost and Financial Distress for companies quoted at the Nairobi Securities. This study has revealed corporate debt has no impact on derivative use by firms listed at the Nairobi Securities Exchange. This paper contributes to the current debate on the introduction of derivative trading in the Kenyan Financial Markets.

Key Words: Derivatives, agency problems, Leverage, financing costs, financial distress


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