EFFECT OF DEBT FINANCING ON FINANCIAL PERFORMANCE IN PUBLIC UNIVERSITIES IN NAIROBI COUNTY, KENYA
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Abstract
Public universities in Kenya face persistent financial pressures arising from inadequate funding, rising operational costs and increasing demand for infrastructure and academic services. Debt financing has therefore become an important mechanism for mobilising resources for capital development and institutional operations. However, excessive or poorly managed borrowing may constrain liquidity and undermine financial stability. This study examined the effect of debt financing on financial performance in public universities in Nairobi County, Kenya. Specifically, the study sought to determine the effect of debt financing on infrastructure development and examine its effect on liquidity. The study focused on the University of Nairobi, Technical University of Kenya and Multimedia University of Kenya, with administrators and finance personnel as the key respondents. The study was significant to university management, governing councils, policymakers and other stakeholders by providing evidence to support sustainable financing and debt-management decisions. The study was guided by the Pecking Order Theory, which explains institutional financing preferences and the use of debt when internal financing is inadequate. A descriptive survey design was adopted. Primary data were collected using structured questionnaires, while secondary financial information complemented the survey data. Descriptive statistics and inferential analysis using Pearson correlation and simple linear regression were applied. The findings showed strong positive relationships between debt financing and infrastructure development ((r=0.681)) and between debt financing and liquidity ((r=0.724)). Debt financing explained 46.4% of variation in infrastructure development and 52.4% of variation in liquidity, with both regression models statistically significant at (p<0.001). The study concludes that debt financing significantly influences both infrastructure development and liquidity. It recommends prudent borrowing, rigorous financial appraisal, effective debt monitoring, favourable borrowing terms and integration of debt decisions into broader institutional financial planning.
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