Effect of bankruptcy costs on value of firms listed in Nairobi securities exchange

Abstract

This study measured the effect of bankruptcy costs on the value of the firm . Financial statements of listed firms for the period of 10 years 2008- 2017 were used. The study was anchored on the Traditional theory which emphasizes on optimality of a capital structure. This study was guided by positivisim research philosophy due to its power of applting deductive logic in arriving at meanings. Asample of 40 firms which have been consistently quoted during the entire study period of 2008-2017 was used. A data collection sheet was used to extract secondary data from published financial statements. Peer reviews were done to unsure face validity while expert opinion ensured content validity. Data was analyzed using descriptive statistical methods of minimums, maximums, mean, percentages and standard deviation. Further Karl Pearson correlation coefficient and backward regression techniques were adopted in analysing the panel data. The results were presented in the form of summarised tables and graphs. The findings revealed bankruptcy costs and had significant effect on value of the firms listed in Nairobi Securities Exchage. It was recommended that information symmetry could be enhanced through close monitoring of compliance to corporate governance practices particularly on disclosure requirements.