📄 Abstract
Commercial banks play a key role in economic development by facilitating financial inclusion and sustainable environment which significantly contribute to the success of financial institutions and the entire economy. The adoption of green financing for sustainable environment has transformed the financial sector, offering convenience and efficiency to the financial institutions and customers. Despite the evolution of green financing, which has transformed sustainable environment there is still challenges with their capital structure optimization. This research focused on examining the effect of green financing on capital structure optimization of listed commercial banks in Kenya. Precise objectives involved investigating the effect of green bond, green loan and green equity on capital structure optimization of listed commercial banks in Kenya. It also looked at the mediating effect of banks risk appetite as well as the moderating effect of green regulatory environment on the relationship between green financing and capital structure optimization of listed commercial banks in Kenya. Theories of static trade off, signaling theory, stakeholder theory and pecking order theory informed the literature of the study. The research utilized a causal comparative effect design. The target population was 10 listed commercial banks in Kenya. Census approach was utilized since population was small. Descriptive statistics of mean and inferential statistics of panel regression analysis was applied. STATA version 16 was used as the analytical instrument. The regression model for the study was panel regression. In addition, the diagnostic tests were done. The analyzed data was displayed in tables. Besides, the research adhered to ethical standards. The study found that green bond, green loan and green equity both had statistical significant effect on capital structure optimization of listed commercial banks and concluded that green financing constructs were statistically significant and both hypotheses were rejected. It was also found that banks risk appetite provide a partial mediation effect and green regulatory environment provided a moderation effect on the relationship between green financing and capital structure optimization. The study concludes that GBR exerts a structurally destabilizing influence on the banking system, as sustained disclosure heightens systemic fragility. It also concludes that GLR significantly undermines capital structure optimization by constraining the ability of banks to meet obligations and sustain lending operations. It further concludes that well-managed green equity issuance can function as a resilience-enhancing factor within the banking sector, as it promotes diversification and reduces exposure to stranded asset risks. Similarly, it concludes that banks risk appetite is a critical transmission mechanism in the green finance nexus, as instability in returns magnifies the vulnerability of banks to external shocks. Finally, it concludes that moderation analysis showed that GRE had a negative moderating influence on green financing variable. The study recommends that the CBK and the National Treasury revise prudential guidelines to require integration green bond issuance guidelines into credit portfolio risk weighting. It also recommended that banks should utilize green loans since they provide financial incentives for borrowers to adopt sustainable practices, which can lead to cost savings and improved reputation for the bank. Besides, it is recommended that banks should utilize green equity financing since its superior ESG performance can elevate the bank capital ratio, particularly from environmental and social initiatives. Furthermore, it recommends that banks should have the risk appetite since it significantly influences its capital structure by determining the level of risk it is willing to accept in pursuit of its strategic objectives. Finally, it was recommended that banks should adopt the regulatory frameworks since green initiatives improve risk management by addressing environmental risks and ensuring compliance with regulations.
🏷️ Keywords
📚 How to Cite:
Simeon Rugutt, Samuel Nyabute, Victor Muinde, Dr John Mungai , GREEN FINANCING INSTRUMENTS AND CAPITAL STRUCTURE OPTIMISATION BY LISTED COMMERCIAL BANKS AT THE NAIROBI SECURITIES EXCHANGE, KENYA , Volume 13 , Issue 9, September 2026, EPRA International Journal of Economics, Business and Management Studies (EBMS) , Pages: 65 - 74 ,