Long-term Debt, Profitability and Stock Market Volatility at the Nairobi Securities Exchange, Kenya.

Abstract:This study examines the effect of long-term debt on stock market volatility among firms listed on the Nairobi Securities Exchange (NSE) in Kenya from 2013 to 2022. Using a positivist research paradigm and a causal design, the research employs panel data analysis and a Generalized Autoregressive Conditional Heteroskedasticity (GARCH 1,1) model. Data from 60 active NSE-listed firms are analyzed annually, with the Random Effects Model (REM) identified as the most suitable, controlling for firm size and including profitability as a moderator. The findings show a statistically significant and positive relationship between long-term debt and stock market volatility within the controlled and moderated REM. This indicates that higher levels of long-term debt contribute to increased market fluctuations at the NSE, despite its importance for corporate growth. The study concludes by recommending that investors consider long-term debt in risk assessments, companies adopt strategic debt management, and the Capital Markets Authority (CMA) closely monitors this dynamic to maintain market stability.