Abstract:
Purpose:The study aimed at examining the moderating effect of capital structure in the indirect relationship between institutional ownership and financial performance through corporate diversification of listed firms at the Nairobi securities inKenya.Approach/Methodology/Design:Post positivist research paradigm and explanatory research design guided the study in which 35 listed firms from 2003 to 2017 were included.Findings:There was a significant interaction effect between capital structureand institutional ownership on financial performance through corporate diversification.The study extended market power theory by examining institutional ownership structure given that corporate diversification is not only a source of power to drive a firm’s performance.PracticalImplications:Institutionalinvestorsprovideequitycapitalthatiscollaboratedwiththefirm’scapitalstructure.Asaresult,thereexistsufficientresourcestotakeondiversificationstrategydespitethistranslatingtoasmalleramountintermsoffinancialperformance.ThestudyhadimplicationsonMarkettimingtheorywhichopinesthatmarkettimingisa‘firstorderdeterminant’toaidinselectingasuitableformoffinancinggivendebtandequity.Ideally,thepreferencesofdifferentownersinthefirmwouldaffectthechoicebetweendebtandequityfinancing.Originality/value: Investigation of the interaction effect between capital structure and institutional ownership on financial performance through corporate diversification
