ABSTRACT : Financial restructuring has become a global concern over the years as very profitable firms have collapsed in the manufacturing sector. The study sought to assess the effect of capital restructuring on financial performance of listed manufacturing firms in Kenya. The study was anchored on Trade-off theory, life cycle theory and pecking order theory. Longitudinal research design was adopted on a population of all the eight manufacturing firms listed on Nairobi Securities Exchange in financial years 2012 to 2021. Data was collected using secondary data collection sheet from audited financial statements and annual reports. Panel data was analyzed using STATA. Simple linear regression was used to establish the relationship between capital restructuring and financial performance. Pearson’s product moment correlation established a negative and significant relationship between capital restructuring and financial performance. The regression coefficient estimate of capital restructuring was (β =-0.266, t=-2.44, p value = 0.017). It was concluded that capital restructuring had a negative and significant effect on financial performance of listed manufacturing firms in Kenya. It was hence recommended that manufacturing firms ought to minimize on debt usage and also look for the optimal mix of debt and equity in order to drive financial performance in the desired direction.

KEYWORDS –Capital restructuring, debt capital, financial distress, financial performance, manufacturing firms.