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Finance, Accounting and Business Analysis 
Volume 7 Issue 2, 2025 

http://faba.bg/       
ISSN  2603-5324 

DOI: https://doi.org/10.37075/FABA.2025.2.11 

 

Influence of Preference Share Capital on Financial Performance of Listed 

Manufacturing and Allied Firms in Kenya 

 

Ayiego Jackson Lumbasio1* , Martin Onsiro2 , Isaac Abuga3  

 

Mount Kenya University, Kenya1  

School of Business and Economics, Mount Kenya University, Kenya2   

School of Business and Economics, Mount Kenya University, Kenya3 

* Corresponding author 
 

 

Info Articles   Abstract 
 

History Article: 

Submitted: 13 May 2025 
Revised: 12 August 2025 

Accepted: 13 November 2025 

 Purpose: This study assessed the influence of preference share capital on 

financial performance of listed manufacturing and allied firms in Kenya. 

The research applied Modigliani and Miller theory, Trade-off, Pecking 

Order, and Market Timing and the stakeholder theories appropriately.  

Design/Methodology/Approach:  The target population comprised 248-

line managers within the manufacturing firms listed on the NSE from 2016 

to 2022. Data collection method utilized was both secondary and primary. 

Data analysis included inferential: regression analysis, Chi-Square, and 

ANOVA test while descriptive statistics involved the use of Range, 

Variance, and Standard deviation. Presentation of data was done by clear 

use of figures including tables. Financial performance was measured by 

return on assets ratio.  

Findings: The findings indicated that Preference shares have a significant 

positive effect on the financial performance of listed manufacturing and 

allied firms (p value<0.05). The study concludes that preference share 

capital significantly enhances the financial performance of listed 

manufacturing and allied firms by providing a stable funding base, 

improving liquidity, and reducing the cost of equity.  

Practical Implications: The study recommends that firms prioritize the use 

of preference shares to carefully manage debt levels, strategically reinvest 

retained earnings, and consider ownership structures when developing 

capital strategies. Additionally, it recommends the need for policies that 

support the adoption of these practices to foster sustainable growth and 

financial stability in the sector.  

Originality/Value: The findings offer insights to investors, policymakers, 

and corporate managers regarding the optimal structuring of capital to 

enhance firm value and competitiveness. 

Paper Type:  Research Paper 

 

Keywords:  

Preference share capital, 

financial performance, 

manufacturing and allied 

firms  
 

 

JEL: G32, L67, M41, O16   

* Address Correspondence:   

E-mail: lumbasyojack@gmail.com1 

MOnsiro@mku.ac.ke2  

AMokono@mku.ac.ke3  

 

 

http://faba.bg/
https://doi.org/10.37075/FABA.2025.2.11
mailto:lumbasyojack@gmail.com
mailto:MOnsiro@mku.ac.ke
mailto:AMokono@mku.ac.ke
https://orcid.org/0009-0004-6357-3209
https://orcid.org/0000-0001-7340-5306
https://orcid.org/0000-0003-2846-4424


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INTRODUCTION 

 

Establishing correct and favorable capital structure is a pertinent issue for any company, impacting 

shareholder returns significantly. A well-suited capital structure enhances market value, thereby elevating overall 

company worth. Loans and bonds as forms of debt capital, and equity capital, encompassing preferred and 

common stocks along with retained earnings, are integral components. Assessing the relevant equity ratios 

provides insights into an entity’s borrowing practices and its viability (Adeyemi and Oboh 2020). An optimal 

capital structure enables efficient utilization of available funds, ensuring the fulfillment of financial requirements 

while minimizing the cost of capital. Striking the right balance prevents both over-capitalization and under-

capitalization, safeguarding the enterprise's financial health. This approach fosters prudent financial 

management, bolstering the company's ability to seize growth opportunities and navigate market challenges 

effectively. Thus, a crafted capital structure is fundamental on steering growth that is sustaining and maximizing 

shareholder value in the current ever changing business landscape. 

UK, German, and French firms tailor their debt ratios to sector norms, adjusting within defined 

parameters. Agency and bankruptcy costs are key factors influencing leverage decisions (Antoniou and Stewart 

2018). These considerations underscore the significant impact of external factors on firms' financing choices, 

highlighting the importance of strategic financial management. By aligning debt levels with industry standards 

and accounting for associated costs, companies can mitigate varying risks to enhance financial performance by 

assuring optimal capital structure. This approach ensures prudent decision-making and fosters resilience in the 

face of market uncertainties. Moreover, understanding the interplay between leverage determinants and 

financing decisions enables firms to navigate complexities effectively, positioning themselves for long-term 

success and sustainable growth. Therefore, UK, German, and French firms must carefully evaluate their capital 

structure dynamics, taking into account both internal and external factors in achieving optimal financial 

outcomes while in turn maximize shareholders’ wealth. 

Foreign investment portfolios can offer diversification benefits by allowing funds holders to allocate their 

capital in a number of countries and markets (Omorokunwa 2018). Through foreign assets’ investment, funds 

owners subsequently reduce being exposed to market risks domestically and potentially benefit from the 

performance of different economies. Investing in foreign markets can provides access broader range of investing 

opportunities access and potential much higher returns in comparison to domestic investments (French 2019). 

Capital structure implies to the ways through which firms and business entities fund their operations. Failure by 

an entity to fund and meet its financial obligations marks its death bed. A study making use of Kenyan data 

done by Kiogora (2019) reveals a negativity in correlation over firms' returns Vis-a-viz their levels of financial 

leverage. Current data indicates the issuance of 68 T-bonds by the Kenyan government, along with ten corporate 

bonds issued by seven firms, and the listing of stocks of 60 firms stocks in Kenya’s N.S.E as of December 2012. 

Furthermore, these listed entities collectively did float over 5.1 billion worth of shares valued at Kshs. 868 billion, 

while an estimation value of bonds was Kshs. 92.48 billion towards end of 2012. 

Kenya's economic growth and overall competitiveness are linked to the performance of its manufacturing 

and allied sector, which ranks third in terms of GDP contribution. However, like many other sectors, this domain 

has faced challenges stemming from various financial conditions, resulting in fluctuating performance and 

growth rates. For instance, during the years 2008-2010, the niche industry contended with its lower GDP 

contribution rates of growth, at 1.7% while consecutively an improvement of 2.6% respectively (Kenton 2024). 

Subsequent years showed signs of recovery, with the 2010 financial year. Nonetheless, the sector's growth was 

significantly hampered by the financial crisis and subsequent slowdown, leading to decreased demand in the 

local market and currency depreciation. This highlights the vulnerability of the manufacturing and allied sector 

to external economic shocks and indicates the importance of implementing robust strategies to bolster resilience 

and sustain growth in the face of adversity (Lagat 2020). 

This is the area that the study is going to focus on. Within Kenya's economic landscape, the 

manufacturing industry holds a significant position, ranking as the fourth largest in terms of the volumes of 

contribution towards the country’s (GDP). Following agricultural sector, transportation and communications, 

retail trade and wholesale trade, the manufacturing makes a contribution of 18 per cent to the country’s GDP, 

playing pivotal role in both domestic and regional trade dynamics. Notably, it actively engages in exports to the 

larger Central and East Africa region, further solidifying its importance in the broader economic framework 

(Mule and Mukras 2018). Employment-wise, the sector serves as a major source of livelihood, directly and 

indirectly supporting approximately 2.3M individuals across the non-formal and formal sectors. While at 

conception was grouped in import substitution policy, the sector has evolved into a fully-fledged export-oriented 

entity. It encompasses twelve distinct sub-categories, depicted by the nature of products manufactured and the 



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types of raw materials imported by firms (Maina and Omwenga 2019).  

Initially identified as Nairobi Stock Exchange, the Nairobi Securities Exchange (NSE) stands as Kenya's 

primary securities exchange market. Established in 1954 during Kenya's colonial period, it operated as an 

overseas stock exchange under the auspices of the London Stock Exchange (Nairobi Securities Exchange 2020). 

Today, the NSE operates within the framework of the African Securities Exchanges Association, reflecting its 

integration into broader regional financial systems. The securities exchange market is key to this study as apart 

from being the source of the secondary data the study will consume, it is a pertinent element from the regulatory 

perspective of firms to the platform it offers for firms to trade in equities and debt, the variables used in the study. 

The NSE's significance transcends national borders, contributing to the vibrancy of Africa's financial landscape. 

In terms of stock trading volumes, it ranks as the fourth largest stock exchange, proving its pivotal role in 

facilitating investment and capital flows within the region (Changaya and Fatoki 2020). This rich history and 

strategic positioning highlight the NSE's stature as a key player in Kenya's financial sector, serving as a conduit 

for capital mobilization and investment opportunities. 

According to (Kariuki 2018), the manufacturing and allied sectors of the Kenyan economy have exhibited 

a pattern of recovery in recent years, demonstrating growth rates of 4.9% in 2004, 5.8% in 2005, and 6.9% in 

2006. This upward trajectory reflects positively on the sector's overall financial performance during the same 

period, an indication of the interconnectedness between manufacturing activity and individual company 

financial outcomes. However, despite these initial gains, the sector still experienced fluctuations. From 6.85% 

in 2015, it declined to 5.83% in 2016 and further to 2.42% in 2017. Subsequently, there was a notable rebound 

to 9.65% in 2018, followed by a setback to 4.6% in the last quarter of 2019. The year 2020 brought unprecedented 

challenges, with Kenya recording a negative growth of 0.42% attributed to adverse impacts of the COVID-19 

scourge. Moreover, manufacturing GDP for Kenya has displayed a concerning trend of persistent decline from 

2011 to 2021. Starting at 11.16% in 2011, it gradually decreased to 7.24% in 2021, reaching an alarming low of 

3.7% in the fourth quarter of 2022 (CBK 2023). These statistics underscore the need for strategic interventions 

to revitalize the manufacturing sector and mitigate the challenges that have hampered its growth trajectory in 

recent years. 

The country’s GDP surged by 5 percentages in the first quarter of 2023, marking a notable increase from 

the 4.2 percent growth observed during the same period in 2022. This upturn signals a promising trajectory of 

economic recovery, attributed to the gradual relaxation of containment measures aimed at combating the spread 

of COVID-19. Notably, key sectors such as food service, accommodation, and manufacturing have exhibited 

improved performance, contributing significantly to GDP growth (Natalie 2023). She continues to explain that 

a part from the direct contribution to the GDP, the sector offers the greatest employment opportunities to the 

citizenry hence improvement on social living due to the generated income to households. The collapse of the 

sector means loss of income thus impacting heavily to income earners. Such may lead to social vices like stealing, 

prostitution, corruption negative impact on mental health, satisfaction over life, economic resources access and 

social integration (Kariuki 2018). He continues to opine that, the said condition as far as declining industries is 

concerned often affect the economy significantly in forms including job losses, decreased government revenues, 

and impacts negatively on related industries. 

As per the Economic Survey of 2019, a 6.3 economy expansion for the country was registered in 2018, 

largely propelled by notable growth in the agriculture, manufacturing, and transport sectors. This marked a 

significant improvement from the 4.7 percent growth registered in 2017, the lowest in five years. Particularly 

impressive was the manufacturing sector's growth, which surged from 0.5 percent in 2017 to 4.2 percent in 2018, 

signaling a robust rebound. The diverse financial performance observed among manufacturing and allied firms 

in Kenya during this period cannot solely be attributed to capital structure decisions for financing operations. 

Instead, it was largely influenced by government tax waivers and subsequent reductions in production costs 

(Deloitte Touche 2019). Moving forward to 2021, the manufacturing sector demonstrated resilience with a real 

value-added growth of 6.9 percent, a notable recovery from the negative 0.4 percent recorded in 2020. During 

this period, the manufacturing sector contributed 7.2 percent to GDP, accompanied by a commendable 6.0 

percent expansion in output volume (Economic Outlook 2023). Such trends affected grossly the pivotal role of 

the sector and the entire industry in an economic growth drive.  

In his seminal work on firms' financial performance determinants, Ebaid (2018) performed an assessment 

analyzing the outcome of capital structure decisions over Egyptian companies, prominent economic force in 

Northern region of Africa. The research spanned from 1997 to 2005 and focused on non-financial quoted 

companies across ten distinct industries, comprising a sample of sixty-four firms. Ebaid's study utilized (ROE) 

and gross profit margin as metrics to gauge companies' profitability, employing multiple regression analysis as 

the primary methodology. However, it overlooked the inclusion of ROA, a critical indicator in assessing 



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companies' financial performance. Most research works have been conducted but all have come up with mixed 

reasons as to why firms may not reach their optimal performance. Many of the researches have not expounded 

on capital structure as one of the reasons, but instead delved in other parameters such as multiple taxation and 

cost of production among many others. Building upon such gap, present study is to investigate preference share 

capital in relation to a firm’s financial performance specifically within manufacturing and allied sectors listed on 

the Kenya’s Securities market. By addressing such a gap in literature, the exercise endeavored in offering 

comprehensive insights on the intricate dynamics shaping firms' financial performance within the Kenyan 

context. 

 

LITERATURE REVIEW  

 
In understanding the influence of preference share capital on the financial performance of listed 

manufacturing and allied firms in Kenya, it is essential to ground the analysis in key theories of capital structure 

and corporate governance. This section reviews the Modigliani-Miller Theory and Stakeholder Theory, with an 

emphasis on how these frameworks explain the use and implications of preference share capital. The Modigliani-

Miller (MM) theory, introduced by Modigliani and Miller (1958), remains foundational in the study of capital 

structure. Their first proposition asserts that under conditions of perfect capital markets—with no taxes, 

transaction costs, or bankruptcy costs, the value of a firm is independent of its capital structure. In essence, how 

a firm finances its operations (through debt, equity, or preference shares) does not affect its market value. This 

proposition is particularly useful in analyzing preference share capital, as it raises the question of whether 

financing through such instruments actually enhances firm performance. However, MM’s second proposition 

introduces the role of cost of capital and shows that in a world with corporate taxes, debt (and by extension, 

hybrid instruments like preference shares) provides tax shields that may improve firm value. Preference shares 

occupy a unique space between equity and debt, they usually provide fixed dividends but lack voting rights and 

offer priority in dividend payouts over common shares. Thus, from an MM perspective with taxes considered, 

preference shares may be used as a strategic instrument to optimize the firm’s weighted average cost of capital 

(WACC) and boost financial performance through partial debt-like benefits. Empirical applications of the MM 

framework suggest that firms with well-structured preference share capital may enjoy improved access to funds 

without diluting control, thereby supporting capital investment and performance (Brigham and Ehrhardt 2013). 

Nonetheless, MM theory remains limited in explaining real-world financing behavior because it assumes away 

market imperfections, which are significant in emerging economies like Kenya. 

Stakeholder theory, as articulated by Freeman (1984), challenges the shareholder-centric model by 

emphasizing that firms must consider the interests of a broad set of stakeholders, including employees, 

customers, suppliers, creditors, and the community. The theory posits that long-term financial performance is 

linked to a firm’s ability to align its actions with the expectations of its stakeholders. Preference share capital can 

be interpreted through this lens as a financial instrument that accommodates both investor and managerial 

preferences. Investors who value stable, predictable returns with lower risk, such as pension funds or risk-averse 

institutional investors, may find preference shares attractive. At the same time, managers may prefer this mode 

of financing since it avoids ceding control (as preference shares usually lack voting rights) and minimizes 

financial distress compared to high-leverage debt (Wicks and Harrison 2017). Moreover, issuing preference 

shares may signal managerial commitment to meeting fixed obligations without burdening the firm with the 

restrictive covenants that come with debt (Zakhem and Palmer 2017). This may foster trust and goodwill among 

stakeholders, which in turn supports operational efficiency and financial performance. Therefore, preference 

shares can be understood as a stakeholder-aligned financing tool that helps balance capital needs, risk exposure, 

and stakeholder relationships. 

A thorough investigation into interplay among credit risk management, capital structure and the financial 

performance of microfinance institutions (MFIs) in Uganda, utilizing the lens of agency theory was conducted 

by Orichom and Omeke (2021). By employing a cross-sectional research design, the study meticulously 

scrutinized 64 MFIs operating within Uganda. Through correlation and multiple regression analyses, the 

gathered data underwent rigorous examination. The findings show the pivotal role of credit risk management in 

bolstering overall financial performance. Conversely, the research opined that configuration of capital structure 

bears no significant correlation with financial performance. Consequently, the study advocates for a heightened 

emphasis on credit risk appraisal, monitoring, and mitigation strategies to fortify the financial robustness of 

MFIs. While the choice between debt and equity structures remains inconsequential to financial performance, 

prudent risk management practices emerge as indispensable for sustaining positive outcomes in the realm of 

microfinance. 



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In his study, Ngoc (2018) thoroughly examined the efficacy of preference share capital on the financial 

advancement and profitability of thirty logistical companies listed on Ho Chi Minh City Stock Exchange 

(HOSE) trading as from 2012 to 2019. Making use of a rigorous regression analysis methodology, the research 

meticulously parsed the data. The outcome suggested distinct results: a confirmed negative correlation between 

financial progress and long-term borrowed funds, alongside positive correlations between size and debt, 

consistent and at par with both Trade-off and signaling theories. In summary, the study provided substantial 

support for prevailing capital structure theories, elucidating the factors influencing corporate debt decisions. 

Ngoc further advocated for additional research endeavors to deepen comprehension of the applicability of 

preference share capital, particularly within industries characterized by modest scale, notably in developing 

economies. This insight carries significant implications for strategic decision-making in financial management, 

prompting a reevaluation of capital structure strategies on and above the broader context of corporate finance. 

Orichom and Omeke (2021) Carried out an in-depth exploration into the connection over credit risk 

management, capital structure, and the financial performance of microfinance entities (MFIs) in Uganda, under 

the framework of agency theory. By employing a cross-sectional research approach, the study meticulously 

scrutinized 64 MFIs across Uganda. Through robust correlation and multiple regression analyses, the dataset 

underwent thorough examination. The findings unequivocally underscored the significant contribution of credit 

risk management to fostering sound financial performance. Conversely, the exercise suggested, capital structure 

exhibited no significant connection with financial performance. Consequently, the study emphasizes the 

paramount importance of credit risk appraisal, monitoring, and mitigation strategies in bolstering the financial 

stability of MFIs. While the specific configuration of debt or equity may not directly impact financial 

performance, prudent risk management practices are deemed essential for mitigating credit risks and steering 

MFIs towards positive financial outcomes. 

A comprehensive analysis on influence of capital structure over financial performance within Nigeria's 

retail sector was conducted by Muhammad (2019). The exercise focused on firms quoted on the Nigeria’s 

Securities market, a sample size consisting of 6 selected firms was made use of. By utilizing a filtering sampling 

technique, data spreading in a five-year period of time as from 2012 to 2016 was analyzed. Dependent variable 

used was financial performance, Proxified by return on assets (ROA), and the independing dimensions included 

short-term debt, long-term debt (LTD), and shareholders' funds (ROE). The data analysis was conducted using 

description statistics, regression analysis and correlation through E-views 8.0, with significance level set at 0.05 

(5%). Outcomes revealed, short-term debts had no significance with no impact on financial performance of the 

listed firms within Nigeria's retail sector. Conversely, equity (Preference share capital) demonstrated a real 

significant effect on the financial performance of these listed firms. Regarding these outcomes, the research 

offered valuable recommendations for corporate decision-making. It emphasized the importance of companies 

critically evaluating and comparing the costs associated with obtaining various sources of capital against the 

anticipated benefits. Rather than making capital structure decisions based on unfounded generalizations, 

managers are encouraged to conduct thorough assessments to ensure a favorable outcome. This strategic 

approach enables managers to optimize capital structure, thereby maximizing gains and enhancing overall 

financial performance. Such insights are instrumental in guiding prudent financial management practices within 

the consumer goods industry and beyond. 

In a study examining 85 listed firms in Tehran, Safari et al. (2016), researched on capital structure effects 

over performance. They realized that variables for measuring firm performance, that include return on assets 

and return on equity, market value of equity to book value of equity and Tobin's Q, exhibited positivity worth 

of significance in relation to capital structure. Similarly, in the other examination involving 63 listed Pakistan 

firms, researchers discovered a positive effect on capital structure components on ROA. Specifically, the debt to 

total assets ratio was found to positively influence return on equity, while equity over assets and long-term debts 

over assets demonstrated a negativity on return on equity. These findings highlight the intricate correlation 

between firm’s profitability and capital structure, exhibiting important insights for strategic decision processes 

in corporate finance. 

 

METHODS 

 
The methodology of this study adopted a mixed methods approach, drawing from a fusion of positivistic 

and naturalistic perspectives within research philosophy. As articulated by Trochim (2016), research design 

opines as the cohesive framework that bonds together the various elements of a research endeavor. In alignment 

with these principles, the study embraced a causal research design, selected for its quantitative orientation and 

inherent pre-planned, structured methodology. In line with the outlined parameters, the unit of inquiry for this 



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study consisted of 248 line managers drawn from the manufacturing and allied companies listed on the Nairobi 

Securities Exchange. This distribution is clearly delineated in the accompanying form, ensuring transparency 

and precision in the research methodology. This study employed the census method, an approach that involves 

examining every unit, individual, or element within an entire population. Essentially, a census method 

constitutes a comprehensive enumeration, ensuring a thorough and exhaustive count. 

Within these firms, the respondents comprised all 248 line managers working in finance, financial 

management, and related departments. This approach ensures a representative and thorough examination of the 

targeted population, thus factoring the robustness and reliability of the study’s outcomes. In this assessment, a 

comprehensive approach was adopted to gather data from finance line managers of manufacturing and allied 

firms registered at the Securities Exchange market (NSE). Both open and closed-ended questionnaires were 

utilized for purposes of ensuring a thorough examination of the pertinent factors. These questionnaires 

encompassed inquiries into various aspects of firm performance, particularly focusing on the utilization of 

equity, debt, preference, retained earnings, and the influence of foreign investment. The closed-ended 

questionnaires were structured using a Likert scale format, providing respondents with a spectrum of options 

ranging from “Strongly Disagree” to “Strongly Agree.” This systematic approach enabled precise measurement 

and analysis, ensuring robust and reliable deep understanding into the relationships between capital structure 

decisions and organizational performance within the manufacturing and allied sectors. 

In relation to the findings of this research exercise, the methodology of data collection involved a 

combination of primary and secondary approaches. This strategic blend is chosen because it leverages both 

firsthand and existing information, ensuring a comprehensive analysis. Primary data to be used will be gathered 

through structured interviews and the completion of predefined questionnaires by selected respondents. 

Meanwhile, secondary data was acquired using a designed data collection schedule tool, facilitating the 

extraction of insights from various sources such as company profiles, financial statements, and other pertinent 

published reports between a 7-year period from 2016 to 2023. Financial performance was measured by return 

on assets ratio.  

By employing a comprehensive approach, the analysis encompassed statistical methods such as mean 

calculation, correlation assessment, simple regression modeling, and ANOVA f-test application. The outcomes 

of this rigorous analysis were elucidated and exhibited by use of clear and concise figures and tables. Notably, 

correlation emerges as a vital statistic, delineating the interrelationship among the variables employed. 

Additionally, measures of central tendency were employed to provide further insight into the data. Regression 

analysis, a potent tool for probing causal relationships, was employed in the study. In order to ensure the 

conclusiveness of the analysis, collected data underwent scrutiny through the Shapiro-Wilk test in order to 

ascertain its normality. The researcher adhered to a significance level of 0.05, ensuring a rigorous and methodical 

approach throughout the analytical process. 

 

RESULTS AND DISCUSSIONS 

 

This section presents the descriptive statistics, regression analysis and the discussion of the study findings. 

 

Descriptive Statistics 

Table 1. Preference Shares  

Preference Shares Component Mean Std. Dev 

The firm capital structure contains preference shares. 4.28 0.781 

The firm has issued paid up preference shares. 3.83 0.973 

Preference shares issued by the firms have no voting rights. 3.96 1.172 

Preference shares are long term and not easily redeemable. 4.00 1.005 

Preference shares issued by the company are not convertible to equity. 3.71 0.891 

Preference shares issued do not have ownership rights. 4.32 0.767 

Average Mean score 4.02 0.931 

Source: Research Findings (2025) 

 

The first item assessed was whether the firm's capital structure contains preference shares, which received 

a mean score of 4.28 (Std. Dev. = 0.781). This indicates a strong consensus among respondents that preference 

shares are indeed a component of their capital structure, suggesting that these financial instruments are integral 



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to how firms finance their operations. The second statement addressed the issuance of paid-up preference shares, 

yielding a mean score of 3.83 and a standard deviation of 0.973. This indicates that while a majority of 

respondents agreed on the existence of issued paid-up preference shares, there is slightly less uniformity 

compared to the first item. This variance might suggest that not all firms are utilizing paid-up preference shares 

to the same extent, reflecting different strategic approaches to capital financing. 

The perception that preference shares issued by the firms have no voting rights garnered a mean score of 

3.96, (Std. Dev. = 1.172). This result reflects a solid agreement among respondents regarding the non-voting 

nature of preference shares, which is a defining characteristic of these instruments. Similarly, the assertion that 

preference shares are long-term and not easily redeemable scored an average of 4.00 with a standard deviation 

of 1.005, reinforcing the understanding that preference shares serve as a stable, long-term source of financing for 

the firms. This perspective is crucial, as it highlights the strategic role of preference shares in providing financial 

stability and predictability in capital management. 

The item regarding the non-convertibility of preference shares to equity had a mean score of 3.71 (Std. 

Dev. = 0.891). This lower score compared to previous items suggests that there may be some uncertainty or 

variability in how firms view the convertibility of preference shares, which could be indicative of differing 

practices among the firms or a lack of clarity on this aspect. Lastly, the statement regarding the lack of ownership 

rights associated with preference shares scored an impressive 4.32, with a standard deviation of 0.767. This high 

mean reinforces the understanding that preference shareholders do not have ownership rights, which is a 

significant distinction from ordinary shareholders and impacts governance structures within firms. 

The average mean score across all items was 4.02, (Std. Dev. = 0.931), reflecting a generally positive 

perception of preference shares among the firms surveyed. This score suggests that preference shares are widely 

recognized as a valuable component of capital structure, providing firms with a flexible financing option that 

does not dilute ownership control. Overall, the findings indicate that preference shares play a significant role in 

the financial strategy of these firms, contributing to their capital stability and financial performance. The positive 

attitudes towards preference shares highlight their importance as a tool for managing capital structure while 

maintaining operational control, which is crucial for firms seeking to optimize their financial resources in a 

competitive environment. 

These findings align closely with studies, such as Kimani et al. (2023), which explored the role of 

preference share capital in the financial strategies of manufacturing firms in emerging markets. Kimani et al. 

(2023) reported an average score of 4.10 across similar metrics, emphasizing that preference shares are a favored 

instrument for firms seeking stable, long-term financing without ownership dilution. The study highlighted that 

over 80% of surveyed firms incorporated preference shares in their capital structure, consistent with the strong 

consensus (mean = 4.28) observed in the current findings regarding the inclusion of preference shares in capital 

structures. 

Both studies underscore the strategic benefits of preference shares, particularly their role as non-voting 

instruments (mean = 3.96 in the current study, compared to 4.02 in Kimani et al. (2023), which allow firms to 

secure funding while maintaining governance control. Similarly, the perception of preference shares as long-

term and not easily redeemable (mean = 4.00) resonates with Kimani et al.’s findings, which attributed stability 

in financial planning to this characteristic. The slightly lower agreement regarding the non-convertibility of 

preference shares to equity (mean = 3.71) mirrors Kimani et al.’s observation that some firms prefer convertible 

features to attract diverse investor profiles, reflecting variability in financial strategies. 

The higher mean score for the lack of ownership rights (4.32) reaffirms Kimani et al.’s conclusion that 

firms value preference shares for their ability to raise capital without compromising shareholder control. These 

findings collectively highlight a consistent narrative across studies: preference shares serve as a vital component 

of financial strategy, enabling firms to balance operational control, capital stability, and financial performance. 

This alignment underscores the broader applicability of these instruments across diverse organizational contexts, 

particularly in industries that require a stable financial base to navigate competitive environments. 
  



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Regression Analysis 

Table 2. Model Summary on the relationship between preference share capital and financial performance 

Model R R Square Adjusted R Square Std. Error of the 

Estimate 

1 0.506a 0.256 0.253 0.705 

a. Predictors: (Constant), Preference share capital 

b. Dependent Variable: financial performance (measured by return on assets) 

 

From Table 2, the coefficient of determination (Adjusted R2) implied that the preference share capital 

could explain up to 25 percent of the variation in the financial performance. The remaining percent of the 

variation could be due to other predictors not in the model. The model test of fitness results is presented in Table 

3 indicating the reliability of the model in predicting financial performance. 

 

Table 3. ANOVA for the relationship between preference share capital and financial performance 

Model Sum of Squares Df Mean Square F Sig. 

1 Regression 35.927 1 35.927 72.300 .000b 

Residual 104.352 210 .497   

Total 140.278 211    

 

The model result of fitness indicates an F-statistic of 72.300 and a p-value of 0.000<0.05. This indicates 

that the model is fit for prediction at 95 percent confidence level. Preference share capital had a significant effect 

on the financial performance.  The study of multiple regression model coefficients obtained which could be used 

for prediction are presented in table 4. 

 

Table 4. Model coefficients for the relationship between preference share capital and financial performance 

Model Unstandardized Coefficients Standardized 

Coefficients 

T Sig. 

B Std. Error Beta 

1 (Constant) 1.665 0.302  5.508 0.000 

Preference shares 0.594 0.070 0.506 8.503 0.000 

 

As shown above, preference share capital was found to positively influence financial performance in the 

listed manufacturing and allied firms. This implies that an increase in this practice will result in improvement of 

the financial performance. In addition, the variable has a p-value of 0.000, which less than 5% (P < 0.05) meaning 

that the variable is significant in explaining the variations in financial performance in the listed manufacturing 

and allied firms.  

 

Discussion of Findings 
The findings indicate that preference share capital positively influences financial performance, explaining 

up to 25% of its variation. The significant p-value (<0.05) reinforces this positive impact, suggesting that 

increasing preference share capital enhances financial performance in listed manufacturing and allied firms in 

Kenya. This could be attributed to the stability and fixed nature of returns associated with preference shares, 

which likely contribute to predictable earnings. However, the relatively moderate coefficient of determination 

implies other factors also play significant roles in influencing financial performance, highlighting the need for a 

balanced capital structure. 

Preference share capital showed no issues of multi-collinearity, as reflected by a tolerance value of 0.576 

and a VIF of 1.553. The normality test further supported the data’s appropriateness, with skewness and kurtosis 

values of -0.311 and -1.976, respectively. Factor analysis results demonstrated that preference shares are integral 

to capital structure, as two principal components explained 53.59% of the variance. Variables like the non-

convertibility of preference shares to equity and their lack of voting rights emerged as significant. This 

underscores that firms in the manufacturing and allied sectors of Kenya rely on preference shares as a stable 

source of financing, potentially mitigating risks associated with other capital forms. 



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The finding that preference share capital positively influences financial performance aligns with the 

studies by Mwiya et al. (2021) on Zambian listed firms and Fathi et al. (2022) on Middle Eastern firms, both 

showing that preference shares offer a stable dividend policy and reduce volatility in financial returns. However, 

Kojo and Amoako (2020) from Ghana contradict this, arguing that preference shares can limit growth because 

the fixed dividend payouts reduce retained earnings for reinvestment. Hussain and Alam (2023), studying firms 

in South Asia, assert that preference shares can cause liquidity strain when firms are struggling, which may 

negatively affect performance. Furthermore, Yoon et al. (2023) highlight the sector-specific nature of this 

relationship, finding that in capital-intensive industries such as infrastructure, preference shares enhance stability 

but in tech sectors, they may hinder innovation by restricting cash flow. In contrast, Chong and Wang (2021) 

examined Southeast Asian manufacturing firms and found no significant relationship between preference share 

capital and financial performance, arguing that firms relying on equity capital may suffer from shareholder 

constraints, weakening profitability. 

 

CONCLUSION  

 
The study concludes that preference share capital has a positive and statistically significant influence on 

the financial performance of listed manufacturing and allied firms in Kenya. The regression results indicated 

that preference share capital accounts for approximately 25 percent of the variation in financial performance, 

confirming its relevance as part of capital structure. The positive coefficient further suggests that greater use of 

preference share capital is associated with improved performance outcomes within these firms. Descriptive 

findings revealed that preference shares are widely acknowledged as integral to financing strategies, particularly 

due to their non-voting rights, long-term stability, and non-convertible nature. These attributes make preference 

shares attractive to firms seeking to raise capital without diluting ownership control, while also ensuring 

predictable financing commitments. 

However, the explanatory power of preference share capital remains moderate, implying that other 

financial and operational factors beyond the current model also play a substantial role in determining firm 

performance. The study therefore recognizes preference share capital as an important, but not exclusive, 

contributor to financial outcomes in the manufacturing and allied sectors. The findings do not provide evidence 

to generalize about other financial aspects such as liquidity management, cost of equity, or long-term profitability 

beyond the measured relationship. Future research could expand the scope by incorporating other capital 

structure variables and industry contexts to provide a more comprehensive understanding of how preference 

share capital interacts with overall financial strategy. 

The study recommends that listed manufacturing and allied firms should prioritize the inclusion of 

preference share capital in their capital structure strategies. Preference shares offer firms the advantage of 

securing capital without the pressure of immediate repayment, providing financial stability. Firms should 

develop policies to ensure the effective management of preference shares to maximize liquidity. It is also 

advisable for firms to leverage the benefits of preference shares in reducing their overall cost of equity. In doing 

so, companies can enhance profitability while maintaining financial flexibility. Proper assessment of market 

conditions and investor expectations should guide the issuance of preference shares. 

The study recommends that policymakers encourage listed manufacturing and allied firms to adopt 

preference share capital as a viable source of funding. By providing regulatory incentives for the use of preference 

shares, the government can help firms reduce their reliance on high-cost debt. Preference shares offer a fixed 

return to investors, which provides firms with stability in their capital structure. Policymakers could also consider 

tax benefits for firms that issue preference shares, further encouraging their adoption. Such measures would help 

firms improve their liquidity and long-term financial sustainability. Additionally, policies should ensure 

transparent disclosure of preference share terms to protect investors and maintain market confidence. 

 

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