Impact of Lease Financing on the Financial Performance of Listed Firms in Kenya

The financial performance of manufacturing firms listed on the Nairobi Securities Exchange (NSE) has experienced fluctuations, with some firms stagnating or declining, raising concerns among stakeholders such as the government, investors, and shareholders. To address this, some firms are exploring lease financing to reduce asset acquisition costs. This study investigated the effect of lease financing on the financial performance of listed manufacturing firms, focusing on operating leases, finance leases, and leverage financing, while also examining the moderating effect of liquidity. The study was guided by Financial Contracting Theory, Walker’s Theory of Profit, Liquidity Preference Theory, and Trade-off Theory. A descriptive research design was employed, analyzing secondary data from 2017 to 2022 for all eight listed manufacturing firms. Using EVIEWS, descriptive and inferential analyses, including regression and correlation, were conducted alongside diagnostic tests. The findings revealed that operating leases and leverage financing positively and significantly influenced financial performance, whereas finance leases and liquidity had a negative yet significant impact. Liquidity was determined to be an independent factor rather than a moderating variable. The study recommends increased adoption of operating leases and leverage financing to improve financial performance, while advising caution in the use of finance leases. Further research is encouraged to investigate lease financing in other sectors, ensuring current insights and wider applicability in this area.