Capital Structure and Performance of Listed Firms: The Moderating Effect of Financial Innovation

The interaction between capital structure, financial innovation and firm performance has attracted both empirical and theoretical debate although yielding inconsistent and mixed outcomes. Hence, this study aimed to determine the link between these three variables using evidence from East African Listed firms. The study adopted a correlation descriptive design. A total of 112 firms that had cross listed their shares across the East Africa Securities Exchange were targeted and census was used. Information for the study was obtained from Osiris data base as well as other secondary sources. Based on the findings from the study, capital structure and firm performance have an inverse relationship. Financial innovation has insignificant moderating influence in the interaction between the capital structure and firm performance. Listed firms across East Africa should not take up too much debts since it may increase the risks of bankruptcy hence bringing about financial distress that would adversely affect their performance. Firms across east Africa should critically evaluate the costs of issuing debts against the costs of floating new shares before coming up with a proportion of each component within the capital structure for financing projects. The study recommends that listed firms across east Africa should strive a balance between the equities and debts in their capital structures since this will have an influence on their performance.