Determinants of financial leverage in the sugar-manufacturing firms in Western Kenya

The objective of this study is to examine the determinants of financial leverage of sugar industry in western. Analysis of financial leverage was done on all the sugar- producing firms currently in operation in western Kenya. This is because of the small number of firms in the sugar industry in Kenya. For empirical investigation, Panel regression analysis was employed for period covering 2003 to 2011 to find the relationship between financial leverage and the dependent variables; tangibility of assets, age, taxation, growth rate and profitability of the sugar-manufacturing firms. Result for panel regression indicated that Growth rate, profitability and age are statistically positively insignificant determinants of financial leverage. It is also observed that taxation is statistically negatively insignificant determinants of financial leverage. This indicates that there is a no significant impact of growth rate, profitability, age and taxation on the financial leverage of the firms. Tangibility is statistically negatively significant determinants of financial leverage. This indicates that there is no significant impact of tangibility on the financial leverage of the firms. Beta coefficients associated with all the variables are statistically significant at 5% level. These variables explain around 93.6% of variation in financial leverage. The remaining variables incorporated in the model explain only 6.4% of the variation. These facts conclude that tangibility play a major role in determination of the financial leverage in the sugar-producing firms, while growth rate, profitability, age and taxation do a dismal role.