Formal credit market or financial sector seems to be inefficient in its current form to provide c... more Formal credit market or financial sector seems to be inefficient in its current form to provide credit to the poor households despite it providing wide range of financial services, particularly credit, in Kenya. There is, therefore, a need to address this problem so as to improve access to credit thereby improving the living standards of the households. The current paper aim at assessing the effect of group lending on micro credit accessibility among the low income households living in rural and suburban regions of Keiyo south district. Game theory is applied in study to intuit how group borrowers play the microfinance game with the microfinance institution. This study adopted an explanatory and exploratory design. This study was conducted in Keiyo South District in Kenya; the target population was members of Women Organizations. Data for the study was obtained using structured questionnaires. Analysis of data was done using descriptive statistics specifically mean and standard deviation. Multiple regression analysis was used to test hypothesis. Study findings indicated that joint liability and more group diversity enhances accessibility of credit in group lending. However, group size does not determine accessibility of credit in group lending.
This paper describes the relationship between trade credit and SME financial performance for a sa... more This paper describes the relationship between trade credit and SME financial performance for a sample of 50 audited Kenyan Small and Medium Enterprise firms. It discusses on how trade credit affects three measures of financial performance namely; liquidity, profit margin and return on assets. Documentary guide was used in the study to collect secondary data and the data collected were keyed and coded into SPSS package version 20. Analysis was conducted using both inferential and descriptive statistics specifically mean and standard deviation. Inferential statistics where Pearson correlation coefficient to determine the degree of relationship while Multiple regression model was used to test the hypotheses. Findings indicated that trade credit positively affected liquidity, profit margin and return on assets. The results appear to be consistent with pecking order theory by SMEs in pattern of using trade credit instead of other external source of finance.
The purpose of this study was to investigate the effect human resource contribution and environme... more The purpose of this study was to investigate the effect human resource contribution and environmental contribution on firm performance in Nairobi Security Exchange (NSE) Kenya. Legitimacy Theory was used in the study. This research study covered population of 44 firms listed in Nairobi security exchange in Kenya operating consistently in the security exchange during the period 2005-2010 giving a total of 264 firms' year observation. Inferential statistics comprised of correlation and regression analysis method. The study findings revealed that Human Resource Contribution and Environmental Contribution have a positive effect on the firm performance. From findings, the study concluded that human resource and environmental issues contributions affect the performance of firms' particularly environment contribution. The study collective results help to explain why firms should disclose reports. The results also assist CSR practitioners in convincing top management that transparent voluntary environmental disclosures are informative in terms of enhancing firm performance.
Abstract Liquidity refers to a firm’s ability to fund increase in assets and meet obligations as ... more Abstract Liquidity refers to a firm’s ability to fund increase in assets and meet obligations as they fall due. Working capital includes all the current assets and current liabilities. The study concentrated on Banks that were listed at the Nairobi Securities Exchange. The study used a longitudinal research design for it involved taking repetitive measures overtime for the purpose of comparing returns over the periods. The target population was made up of all the 9 NSE quoted commercial banks in Kenya; this was over a period of 10 years from 2002 to 2011. The data was collected from secondary sources; these were published financial statements available at banking survey of Kenya. The descriptive statistics such as mean and standard deviation were used to measure variations. Statistical inferences were drawn using correlation and regression analysis in analyzing the data and testing of hypotheses. The key findings from the study were: debtors’ collection period and cash conversion cy...
The NSE provides one of the platforms for investment into the Kenyan economy and as such, it has ... more The NSE provides one of the platforms for investment into the Kenyan economy and as such, it has generated the interest of many investors which has resulted to the development of various Indices in NSE and has made it necessary to analyze the performance of the Kenyan Stock Market which will help in guiding investors on their diversification strategies. The study aimed at analyzing the relationship between portfolio selection and performance of the NSE with specific reference to the large cap stocks in Kenya. The study applied the Sharpe Single Index model for analysis. According to Sharpe, the SIM and Markowitz Portfolio construction model are closely related. The study found out that the optimal portfolio size is affected by the performance of the economy. Portfolios constituting of fewer securities are made up when the large capitalization stocks are performing well. On the other hand, an optimal portfolio having many securities is created when minimizing losses resulting from ad...
This study sought to find out the effect of corporate governance on financial performance of savi... more This study sought to find out the effect of corporate governance on financial performance of savings and credit cooperatives.. The study looked at five theories related to corporate governance namely: agency theory, stakeholder theory, stewardship theory, simple finance model and the political model. It looked at work by others in Kenya, Uganda, Nigeria and Korea. There are 121 Sacco's in Nakuru, out of which there are fifty active Sacco's. The study did a survey of three Sacco's which have the majority of Sacco members. The study targeted all employees of the Sacco's. The study adopted a census method. They were availed to the respondents so that they could fill and return them. The study was carried out between May 2013 and December 2013. The study used Spearman's rank correlation to analyze and present findings in tables showing percentages, frequency distribution, and also bar graphs, and pie charts. The study found out that there was a significant relationship between financial reporting and financial performance of savings and credit cooperatives. Sacco's with more frequent financial reporting structures showed better financial performance. The study found out that there was a significant relationship between management style and financial performance of savings and credit cooperatives. Participative management with democratic leadership enhanced the financial performance of Sacco's. The relationship between size of the board and financial performance was insignificant at 5% significance level. The study recommended that financial reporting should be done as frequently as possible, and management should use a leadership style that is most comfortable to employees and Sacco size should be kept where financial performance is least affected adversely. The study further recommended that studies should on corporate governance be carried out in other areas such as microfinance institutions, commercial banks and the financial sector as a whole.
Liquidity is a bank's capacity to fund increase in assets and meet both expected and unexpected c... more Liquidity is a bank's capacity to fund increase in assets and meet both expected and unexpected cash and collateral obligations at reasonable cost and without incurring unacceptable losses. Liquidity risk is the inability of a bank to meet such obligations as they become due, without adversely affecting the bank's financial condition. Sound liquidity management can reduce the probability of serious problems. The study adopted a survey research design. The target population included all the 128 employees from the 6 selected MFIs in Kenya. A sample of 96 employees were drawn and used in the study. Questionnaires were used to collect data from the field. The raw data collected was analyzed using the Statistical Program for Social Sciences (SPSS) Version 21.0. The hypotheses were tested using multiple regression analysis. The study found out that Micro Finance Institutions internal control systems, policies, Board oversight and risk monitoring significantly affects its liquidity risk management practices. The study recommended that established MFIs document their local strategies applied in liquidity risk management; effective internal control processes be introduced through implementation of computerized financial management systems; institutions should employ effective policies that impacts positively on the overall liquidity risk management functions; the Board should develop initiatives to facilitate review of liquidity management framework and also provide strategic direction to the liquidity risk management function and the MFIs to maintain adequate information systems for measuring, monitoring, controlling and reporting on liquidity risks.
Effectiveness of electronic inventory system is very vital on customer service delivery. Without ... more Effectiveness of electronic inventory system is very vital on customer service delivery. Without effectiveness, the customers will judge businesses harshly. The study evaluated the extent to which electronic inventory systems are used by supermarkets in Kenya. It also sought to determine the level to which lead-time variability resulting from the use of electronic inventory systems affects customer service delivery. The study also aimed at evaluating how the service quality created with electronic inventory systems has on customer service delivery in the selected supermarkets. A descriptive survey research design was adopted for the study with a target population of two thousand five hundred and forty nine respondents (2549) of which forty nine were management staff and two thousand five hundred (2500) were customers of the five major supermarkets in Kenya. A census was conducted among the managers and supervisors while a sample of ninety two (92) was picked from the customers making the total sample size for the study three hundred and eighty one (141). For customers, Stratified-sampling design was used to achieve the desired representation from the total population and the sample size for each stratum was allocated proportionately. Data was collected using questionnaires, which were tested for reliability using Cronbach's Alpha. Data collected was analyzed through Pearson's correlation and the Chi-square test to test the hypothesis. From the analysis the researchers established that majority of the supermarket chains had integrated the use of electronic inventory systems which had enhanced effective customer service delivery. Lead time had also been influenced positively the use of electronic inventory systems as well as the quality of service delivery which in turn led to effective customer service delivery. The researchers recommended continuous improvement on the use of electronic inventory systems to ensure enhanced customer service delivery.
Sound lending procedures in financial institutions involve identifying high-risk loan applicants,... more Sound lending procedures in financial institutions involve identifying high-risk loan applicants, modifying lending conditions such as security requirements and monitoring repayments. Credit risk management is an emerging activity that lies within Sacco's. Many researches have attempted to answer the benefits of the credit risk management. However, it has remained unclear for the Sacco's management on the effects of credit risk management practices on lending portfolio. The purpose of this study was to examine the effects of credit risk management practices on lending portfolio among Sacco's in Nakuru County, Kenya. Data on risk identification, risk analysis, risk monitoring, risk evaluation and risk mitigation obtained from 59 Sacco's sampled from among Saccos in Nakuru County were analyzed using regression models to identify its effect on lending portfolio. Results indicate a significant effect of all the risk management practices on lending portfolio except risk evaluation which did not register a significant effect on the lending portfolio of the Sacco's. The findings further show that majority of the Sacco's have largely adopted risk management practices as a means of managing their portfolio.
Rights issues give existing shareholders the option of purchasing new shares, normally issued at ... more Rights issues give existing shareholders the option of purchasing new shares, normally issued at a discount to the prevailing market price in order to encourage participation in the capital raised over purchasing shares in the market. This study aimed to identify the effects of rights issue on the share performance of listed Kenyan-based companies on the Nairobi Securities Exchange. The research was to evaluate the effects of rights issue on firms' subsequent trading prior to and after the issue. All the firms listed at the Nairobi Securities Exchange and were part of the NSE 20 share index were considered. In addition to this, all the firms that performed rights issue between 2007 and 2012 were included in the target population whether or not they were part of the NSE 20 share index.
Liquidity refers to a firm's ability to fund increase in assets and meet obligations as they fall... more Liquidity refers to a firm's ability to fund increase in assets and meet obligations as they fall due. Working capital includes all the current assets and current liabilities. The study concentrated on Banks that were listed at the Nairobi Securities Exchange. The study used a longitudinal research design for it involved taking repetitive measures overtime for the purpose of comparing returns over the periods. The target population was made up of all the 9 NSE quoted commercial banks in Kenya; this was over a period of 10 years from 2002 to 2011. The data was collected from secondary sources; these were published financial statements available at banking survey of Kenya. The descriptive statistics such as mean and standard deviation were used to measure variations. Statistical inferences were drawn using correlation and regression analysis in analyzing the data and testing of hypotheses. The key findings from the study were: debtors' collection period and cash conversion cycle have significantly negative relationship with liquidity of quoted commercial banks; this means that more liquid banks take the shortest time to collect cash from their customers. Creditors' payment period have significantly positive relationship with liquidity of quoted commercial banks in Kenya, this implies that the longer the bank takes to pay its creditors, the more liquid it is. The research recommends that the NSE commercial banks should maintain their current assets for meeting their short term obligation thereby increase their liquidity by shortening their debtors' collection period and cash conversion cycle whereas increasing their creditors' payment period for better liquidity position. Findings of this study add to knowledge and understanding of the subject of working capital management and its implication on liquidity risk on NSE quoted commercial banks.
Corporations split their shares in order to make them more affordable to the retail investors. Th... more Corporations split their shares in order to make them more affordable to the retail investors. Theoretically, increased buying of the stock post split by retail investors should be experienced. Existing literature on effect of stock splits are from studies conducted in developed markets, much of it focusing on market efficiency. The objective of this study was to analyze the effect of stock splits on ownership structure of listed firms in Kenya. Using a data collection sheet, secondary data was collected from the published financial statements of listed firms, which had conducted stock splits between 2004 and 2010. A Herfindahl-Hirschman Index was used to measure ownership concentration among the top ten shareholders before and after the split. The overall change in ownership structure was analyzed using the Wilcoxon Rank Sum Test at 95% confidence level. The results show that although the ownership structure for the companies in the study significantly changed, the change was generally not in favor of retail investors. Contrary to expectations, the holding by institutional investors significantly increased in most cases, implying that stock splits do not cause enough interest in the shares amongst retail investors to tilt the proportions owned in their favor. To the contrary, stock split encourages retail investors to off load their shares in a bid to lock in profits occasioned by the appreciation in the value of the shares after the split. An important recommendation for market regulators and corporate managers is that a stock split may not be a useful tool for dispersing firm ownership but rather only for improving stock liquidity. Investors looking to buy stocks that have announced a stock split should carefully analyze their information content, because during stock market bubble a split may not convey accurate future prospects for the company. Given the increased demand for stocks when a split is announced, it is an ample opportunity to lock in profits for investors looking to sell their shares.
Capital markets are normally considered to be efficient when prices reflect all the available inf... more Capital markets are normally considered to be efficient when prices reflect all the available information. However, there are instances when this information takes several weeks to be incorporated into share prices. This leads to investors' making uninformed investment strategies on whether to hold or dispose shares thus unable to maximize returns. The study determined stock returns of firms listed in NSE and further determined the level of efficiency of NSE. An empirical evidence of anomalies for the study was obtained from 31 companies listed at the Nairobi Securities Exchange, which traded and announced their earnings in 2007. A data collection sheet was used to collect secondary data on market indices, daily closing share prices and traded volumes for a period of 15 days before and after earnings announcement. Daily market adjusted abnormal and cumulative abnormal returns were computed and a further t-test at 5% level of significance done to determine the effect of earnings announcement on stock returns and results interpreted. Earnings announcement had a significant effect on stock returns when CAR was evaluated indicating market inefficiency but AR was not significant for individual companies. From the findings of the study, it was concluded that the Nairobi Securities Exchange is not semi-strong form efficient. Therefore, the Capital Markets Authority should eliminate the factors causing market inefficiencies, in order to boost-to-boost investors' confidence.
Corporations can raise their development capital domestically or through cross-borders listing. L... more Corporations can raise their development capital domestically or through cross-borders listing. Literature reveals that cross-listing of shares enhances firm's visibility and value, and lessens information asymmetry. However, there is scanty empirical evidence on how it affects a firm's financial performance. The objective of this study was to examine whether cross-border listing affects firm's financial performance in Eastern Africa. Financial data spanning three years before and after cross-listing was collected from financial statements of three Kenyan firms which have cross-listed their shares in USE, DSE, and RSE between 2001 and 2011. Using financial ratio analysis, liquidity, profitability, gearing and investor ratios were computed three years before and after cross-listing. The results show a low positive financial performance in terms of liquidity upon cross-listing. Market confidence as measured by P/E ratio also improved. This implied that regional cross-listing may increase firm's investor confidence. Although profitability and gearing ratios improved in absolute terms post cross-listing, this improvement was not statistically significant. In fact, the investor ratios like dividend yield reduced, but such reduction was not statistically significant. Overall, the findings provide some evidence that firms may benefit from crosslisting in terms of liquidity and confidence. Our analysis has uncovered no clear evidence of material value creation to shareholders of cross-listed firms, except improved market confidence. Firm managers and securities markets policy makers in EAC should give thorough considerations to these issues as they seek a regional approach to capital raising and stock market development.
Interest rates play a significant role of intermediation between savers and potential borrowers. ... more Interest rates play a significant role of intermediation between savers and potential borrowers. High deposit rates acts as incentives to attract savings while high lending rates discourage credit demand from potential borrowers. The margin between deposit rate and lending rate at a given time period forms an interest rate band which has implications on borrowing and deposit mobilization in the economy. In Kenya, the interest rate band has persistently remained wide despite the efforts to narrow it down. Several factors have been established that influence this wide interest rate band. However, this was before the financial reform period when commercial banks dominated the financial sector. This study was designed to evaluate the factors that influence a wide interest rate band in Micro Finance Institutions (MFIs) is new developments in the financial sector due to financial reforms in the year 2004. MFI sub sector has contributed to the competitive environment in the credit market. Factors that influence interest rate bands for these Institutions have not been documented. Purposive sampling was used to select a sample of 27 MFIs that are registered members of Association of Micro Finance Institutions (AMFI) Kenya and carry out retail Micro Finance activities. A cause effect research design was applied. Secondary data was extracted from financial statements using a data collection sheet and a questionnaire used to collect primary data. Data was collected for a four year period (2005 -2008) and was analyzed using descriptive statistics. A censored linear tobit model (Tobit) was used to test the hypothesis. The results indicated significant differentials between deposit rates and lending rates. From the findings, four factors; Growth, Financial costs, Profitability and Operating/Administrative costs significantly influenced a wide interest rate band depending on the time period. Findings from this study are expected to provide information to policy makers for decision making and policy formulation. The findings are also expected to be beneficial to the Donor community and support groups in their endeavor to promote Micro -Finance activities in Kenya
Formal credit market or financial sector seems to be inefficient in its current form to provide c... more Formal credit market or financial sector seems to be inefficient in its current form to provide credit to the poor households despite it providing wide range of financial services, particularly credit, in Kenya. There is, therefore, a need to address this problem so as to improve access to credit thereby improving the living standards of the households. The current paper aim at assessing the effect of group lending on micro credit accessibility among the low income households living in rural and suburban regions of Keiyo south district. Game theory is applied in study to intuit how group borrowers play the microfinance game with the microfinance institution. This study adopted an explanatory and exploratory design. This study was conducted in Keiyo South District in Kenya; the target population was members of Women Organizations. Data for the study was obtained using structured questionnaires. Analysis of data was done using descriptive statistics specifically mean and standard deviation. Multiple regression analysis was used to test hypothesis. Study findings indicated that joint liability and more group diversity enhances accessibility of credit in group lending. However, group size does not determine accessibility of credit in group lending.
This paper describes the relationship between trade credit and SME financial performance for a sa... more This paper describes the relationship between trade credit and SME financial performance for a sample of 50 audited Kenyan Small and Medium Enterprise firms. It discusses on how trade credit affects three measures of financial performance namely; liquidity, profit margin and return on assets. Documentary guide was used in the study to collect secondary data and the data collected were keyed and coded into SPSS package version 20. Analysis was conducted using both inferential and descriptive statistics specifically mean and standard deviation. Inferential statistics where Pearson correlation coefficient to determine the degree of relationship while Multiple regression model was used to test the hypotheses. Findings indicated that trade credit positively affected liquidity, profit margin and return on assets. The results appear to be consistent with pecking order theory by SMEs in pattern of using trade credit instead of other external source of finance.
This study aimed at establishing the Influence of investor's behaviour on the performance of Nair... more This study aimed at establishing the Influence of investor's behaviour on the performance of Nairobi Securities Exchange (NSE) indices. A reliable security market index should assist investors in making investment decisions but this is not always the case: investors at times invest in stock whose performance is not reflected in the indices. This study was guided by specific objectives which included: to establish the Influence of momentum effect, financial contagion, white noise effect, Security Price Volatility, and Herding Effect (all as independent variables) on performance of NSE indices as the dependent variable. This study was anchored to finance theories such as random walk theory, rational bubbles theory, smart money and noise trader's theory, price formation and discovery theory, and information disclosure theories. The study was based on a period of 12 years starting from January 2004 to December 2015. The population of this study comprised of all the market participants at the NSE and thus a census approach was adopted where study period was done based on each specific objective. This research relied on primary data. Primary data was collected from all the market participants. In data analysis, a significance level of 5% was used on all objectives and a multiple regression model on each objective was used. The Statistical Package for Social Sciences (SPSS) was used on primary data for analysis. The findings for primary data showed all the indices to be insignificantly influenced by the securities behaviour but the overall NSE indices performance was statistically affected. Hypotheses were tested at 0.05 level of significance. The first hypothesis on momentum effect was not rejected on primary. The second hypothesis on financial contagion was rejected and.on the hypothesis of white noise effect, it was not rejected. The hypothesis of Security Price Volatility effect was not rejected while hypothesis of herding effect was rejected. It was concluded that all the indices play a complimentary role thus the need for the retention of all. NSE is highly contagious of the events that happen around it. The study recommends that future researchers should increase the respondents to also include investors. For the objective of momentum effect, the study recommends that more exchanges be included to get a finer detail. NSE and CMA should ensure that information availed to the researchers is obtained at minimal cost or for free to encourage more research into the security markets.
The purpose of this study was to predict financial distress in Kenyan listed firms. The specific ... more The purpose of this study was to predict financial distress in Kenyan listed firms. The specific objective was to determine the working capital to total assets ratio on financial distress of listed firms. The study adopted a descriptive research design. The target population included all the firms listed at the Nairobi Securities Exchange as at 2008. Secondary data were used in this study and were obtained from the Capital Markets Authority. Purposeful sampling was employed. Both descriptive and inferential statistics were employed in the analysis using SPSS 24. The null hypothesis was tested at 0.05 level of significance. The results of the study were presented in tables and were accompanied by pertinent interpretations and discussions. It was found that an increase in the ratio of working capital to total assets of the surveyed firms was likely to increase financial distress of the surveyed firms. It was concluded that working capital to total assets ratio played a crucial role in determination of financial distress among listed firms. It was recommended that the listed firms should ensure that they have high liquidity in order to effectively mitigate financial distress.
The NSE provides one of the platforms for investment into the Kenyan economy and as such, it has ... more The NSE provides one of the platforms for investment into the Kenyan economy and as such, it has generated the interest of many investors which has resulted to the development of various Indices in NSE and has made it necessary to analyze the performance of the Kenyan Stock Market which will help in guiding investors on their diversification strategies. The study aimed at analyzing the relationship between portfolio selection and performance of the NSE with specific reference to the large cap stocks in Kenya. The study applied the Sharpe Single Index model for analysis. According to Sharpe, the SIM and Markowitz Portfolio construction model are closely related. The study found out that the optimal portfolio size is affected by the performance of the economy. Portfolios constituting of fewer securities are made up when the large capitalization stocks are performing well. On the other hand, an optimal portfolio having many securities is created when minimizing losses resulting from adverse financial market conditions.
Formal credit market or financial sector seems to be inefficient in its current form to provide c... more Formal credit market or financial sector seems to be inefficient in its current form to provide credit to the poor households despite it providing wide range of financial services, particularly credit, in Kenya. There is, therefore, a need to address this problem so as to improve access to credit thereby improving the living standards of the households. The current paper aim at assessing the effect of group lending on micro credit accessibility among the low income households living in rural and suburban regions of Keiyo south district. Game theory is applied in study to intuit how group borrowers play the microfinance game with the microfinance institution. This study adopted an explanatory and exploratory design. This study was conducted in Keiyo South District in Kenya; the target population was members of Women Organizations. Data for the study was obtained using structured questionnaires. Analysis of data was done using descriptive statistics specifically mean and standard deviation. Multiple regression analysis was used to test hypothesis. Study findings indicated that joint liability and more group diversity enhances accessibility of credit in group lending. However, group size does not determine accessibility of credit in group lending.
This paper describes the relationship between trade credit and SME financial performance for a sa... more This paper describes the relationship between trade credit and SME financial performance for a sample of 50 audited Kenyan Small and Medium Enterprise firms. It discusses on how trade credit affects three measures of financial performance namely; liquidity, profit margin and return on assets. Documentary guide was used in the study to collect secondary data and the data collected were keyed and coded into SPSS package version 20. Analysis was conducted using both inferential and descriptive statistics specifically mean and standard deviation. Inferential statistics where Pearson correlation coefficient to determine the degree of relationship while Multiple regression model was used to test the hypotheses. Findings indicated that trade credit positively affected liquidity, profit margin and return on assets. The results appear to be consistent with pecking order theory by SMEs in pattern of using trade credit instead of other external source of finance.
The purpose of this study was to investigate the effect human resource contribution and environme... more The purpose of this study was to investigate the effect human resource contribution and environmental contribution on firm performance in Nairobi Security Exchange (NSE) Kenya. Legitimacy Theory was used in the study. This research study covered population of 44 firms listed in Nairobi security exchange in Kenya operating consistently in the security exchange during the period 2005-2010 giving a total of 264 firms' year observation. Inferential statistics comprised of correlation and regression analysis method. The study findings revealed that Human Resource Contribution and Environmental Contribution have a positive effect on the firm performance. From findings, the study concluded that human resource and environmental issues contributions affect the performance of firms' particularly environment contribution. The study collective results help to explain why firms should disclose reports. The results also assist CSR practitioners in convincing top management that transparent voluntary environmental disclosures are informative in terms of enhancing firm performance.
Abstract Liquidity refers to a firm’s ability to fund increase in assets and meet obligations as ... more Abstract Liquidity refers to a firm’s ability to fund increase in assets and meet obligations as they fall due. Working capital includes all the current assets and current liabilities. The study concentrated on Banks that were listed at the Nairobi Securities Exchange. The study used a longitudinal research design for it involved taking repetitive measures overtime for the purpose of comparing returns over the periods. The target population was made up of all the 9 NSE quoted commercial banks in Kenya; this was over a period of 10 years from 2002 to 2011. The data was collected from secondary sources; these were published financial statements available at banking survey of Kenya. The descriptive statistics such as mean and standard deviation were used to measure variations. Statistical inferences were drawn using correlation and regression analysis in analyzing the data and testing of hypotheses. The key findings from the study were: debtors’ collection period and cash conversion cy...
The NSE provides one of the platforms for investment into the Kenyan economy and as such, it has ... more The NSE provides one of the platforms for investment into the Kenyan economy and as such, it has generated the interest of many investors which has resulted to the development of various Indices in NSE and has made it necessary to analyze the performance of the Kenyan Stock Market which will help in guiding investors on their diversification strategies. The study aimed at analyzing the relationship between portfolio selection and performance of the NSE with specific reference to the large cap stocks in Kenya. The study applied the Sharpe Single Index model for analysis. According to Sharpe, the SIM and Markowitz Portfolio construction model are closely related. The study found out that the optimal portfolio size is affected by the performance of the economy. Portfolios constituting of fewer securities are made up when the large capitalization stocks are performing well. On the other hand, an optimal portfolio having many securities is created when minimizing losses resulting from ad...
This study sought to find out the effect of corporate governance on financial performance of savi... more This study sought to find out the effect of corporate governance on financial performance of savings and credit cooperatives.. The study looked at five theories related to corporate governance namely: agency theory, stakeholder theory, stewardship theory, simple finance model and the political model. It looked at work by others in Kenya, Uganda, Nigeria and Korea. There are 121 Sacco's in Nakuru, out of which there are fifty active Sacco's. The study did a survey of three Sacco's which have the majority of Sacco members. The study targeted all employees of the Sacco's. The study adopted a census method. They were availed to the respondents so that they could fill and return them. The study was carried out between May 2013 and December 2013. The study used Spearman's rank correlation to analyze and present findings in tables showing percentages, frequency distribution, and also bar graphs, and pie charts. The study found out that there was a significant relationship between financial reporting and financial performance of savings and credit cooperatives. Sacco's with more frequent financial reporting structures showed better financial performance. The study found out that there was a significant relationship between management style and financial performance of savings and credit cooperatives. Participative management with democratic leadership enhanced the financial performance of Sacco's. The relationship between size of the board and financial performance was insignificant at 5% significance level. The study recommended that financial reporting should be done as frequently as possible, and management should use a leadership style that is most comfortable to employees and Sacco size should be kept where financial performance is least affected adversely. The study further recommended that studies should on corporate governance be carried out in other areas such as microfinance institutions, commercial banks and the financial sector as a whole.
Liquidity is a bank's capacity to fund increase in assets and meet both expected and unexpected c... more Liquidity is a bank's capacity to fund increase in assets and meet both expected and unexpected cash and collateral obligations at reasonable cost and without incurring unacceptable losses. Liquidity risk is the inability of a bank to meet such obligations as they become due, without adversely affecting the bank's financial condition. Sound liquidity management can reduce the probability of serious problems. The study adopted a survey research design. The target population included all the 128 employees from the 6 selected MFIs in Kenya. A sample of 96 employees were drawn and used in the study. Questionnaires were used to collect data from the field. The raw data collected was analyzed using the Statistical Program for Social Sciences (SPSS) Version 21.0. The hypotheses were tested using multiple regression analysis. The study found out that Micro Finance Institutions internal control systems, policies, Board oversight and risk monitoring significantly affects its liquidity risk management practices. The study recommended that established MFIs document their local strategies applied in liquidity risk management; effective internal control processes be introduced through implementation of computerized financial management systems; institutions should employ effective policies that impacts positively on the overall liquidity risk management functions; the Board should develop initiatives to facilitate review of liquidity management framework and also provide strategic direction to the liquidity risk management function and the MFIs to maintain adequate information systems for measuring, monitoring, controlling and reporting on liquidity risks.
Effectiveness of electronic inventory system is very vital on customer service delivery. Without ... more Effectiveness of electronic inventory system is very vital on customer service delivery. Without effectiveness, the customers will judge businesses harshly. The study evaluated the extent to which electronic inventory systems are used by supermarkets in Kenya. It also sought to determine the level to which lead-time variability resulting from the use of electronic inventory systems affects customer service delivery. The study also aimed at evaluating how the service quality created with electronic inventory systems has on customer service delivery in the selected supermarkets. A descriptive survey research design was adopted for the study with a target population of two thousand five hundred and forty nine respondents (2549) of which forty nine were management staff and two thousand five hundred (2500) were customers of the five major supermarkets in Kenya. A census was conducted among the managers and supervisors while a sample of ninety two (92) was picked from the customers making the total sample size for the study three hundred and eighty one (141). For customers, Stratified-sampling design was used to achieve the desired representation from the total population and the sample size for each stratum was allocated proportionately. Data was collected using questionnaires, which were tested for reliability using Cronbach's Alpha. Data collected was analyzed through Pearson's correlation and the Chi-square test to test the hypothesis. From the analysis the researchers established that majority of the supermarket chains had integrated the use of electronic inventory systems which had enhanced effective customer service delivery. Lead time had also been influenced positively the use of electronic inventory systems as well as the quality of service delivery which in turn led to effective customer service delivery. The researchers recommended continuous improvement on the use of electronic inventory systems to ensure enhanced customer service delivery.
Sound lending procedures in financial institutions involve identifying high-risk loan applicants,... more Sound lending procedures in financial institutions involve identifying high-risk loan applicants, modifying lending conditions such as security requirements and monitoring repayments. Credit risk management is an emerging activity that lies within Sacco's. Many researches have attempted to answer the benefits of the credit risk management. However, it has remained unclear for the Sacco's management on the effects of credit risk management practices on lending portfolio. The purpose of this study was to examine the effects of credit risk management practices on lending portfolio among Sacco's in Nakuru County, Kenya. Data on risk identification, risk analysis, risk monitoring, risk evaluation and risk mitigation obtained from 59 Sacco's sampled from among Saccos in Nakuru County were analyzed using regression models to identify its effect on lending portfolio. Results indicate a significant effect of all the risk management practices on lending portfolio except risk evaluation which did not register a significant effect on the lending portfolio of the Sacco's. The findings further show that majority of the Sacco's have largely adopted risk management practices as a means of managing their portfolio.
Rights issues give existing shareholders the option of purchasing new shares, normally issued at ... more Rights issues give existing shareholders the option of purchasing new shares, normally issued at a discount to the prevailing market price in order to encourage participation in the capital raised over purchasing shares in the market. This study aimed to identify the effects of rights issue on the share performance of listed Kenyan-based companies on the Nairobi Securities Exchange. The research was to evaluate the effects of rights issue on firms' subsequent trading prior to and after the issue. All the firms listed at the Nairobi Securities Exchange and were part of the NSE 20 share index were considered. In addition to this, all the firms that performed rights issue between 2007 and 2012 were included in the target population whether or not they were part of the NSE 20 share index.
Liquidity refers to a firm's ability to fund increase in assets and meet obligations as they fall... more Liquidity refers to a firm's ability to fund increase in assets and meet obligations as they fall due. Working capital includes all the current assets and current liabilities. The study concentrated on Banks that were listed at the Nairobi Securities Exchange. The study used a longitudinal research design for it involved taking repetitive measures overtime for the purpose of comparing returns over the periods. The target population was made up of all the 9 NSE quoted commercial banks in Kenya; this was over a period of 10 years from 2002 to 2011. The data was collected from secondary sources; these were published financial statements available at banking survey of Kenya. The descriptive statistics such as mean and standard deviation were used to measure variations. Statistical inferences were drawn using correlation and regression analysis in analyzing the data and testing of hypotheses. The key findings from the study were: debtors' collection period and cash conversion cycle have significantly negative relationship with liquidity of quoted commercial banks; this means that more liquid banks take the shortest time to collect cash from their customers. Creditors' payment period have significantly positive relationship with liquidity of quoted commercial banks in Kenya, this implies that the longer the bank takes to pay its creditors, the more liquid it is. The research recommends that the NSE commercial banks should maintain their current assets for meeting their short term obligation thereby increase their liquidity by shortening their debtors' collection period and cash conversion cycle whereas increasing their creditors' payment period for better liquidity position. Findings of this study add to knowledge and understanding of the subject of working capital management and its implication on liquidity risk on NSE quoted commercial banks.
Corporations split their shares in order to make them more affordable to the retail investors. Th... more Corporations split their shares in order to make them more affordable to the retail investors. Theoretically, increased buying of the stock post split by retail investors should be experienced. Existing literature on effect of stock splits are from studies conducted in developed markets, much of it focusing on market efficiency. The objective of this study was to analyze the effect of stock splits on ownership structure of listed firms in Kenya. Using a data collection sheet, secondary data was collected from the published financial statements of listed firms, which had conducted stock splits between 2004 and 2010. A Herfindahl-Hirschman Index was used to measure ownership concentration among the top ten shareholders before and after the split. The overall change in ownership structure was analyzed using the Wilcoxon Rank Sum Test at 95% confidence level. The results show that although the ownership structure for the companies in the study significantly changed, the change was generally not in favor of retail investors. Contrary to expectations, the holding by institutional investors significantly increased in most cases, implying that stock splits do not cause enough interest in the shares amongst retail investors to tilt the proportions owned in their favor. To the contrary, stock split encourages retail investors to off load their shares in a bid to lock in profits occasioned by the appreciation in the value of the shares after the split. An important recommendation for market regulators and corporate managers is that a stock split may not be a useful tool for dispersing firm ownership but rather only for improving stock liquidity. Investors looking to buy stocks that have announced a stock split should carefully analyze their information content, because during stock market bubble a split may not convey accurate future prospects for the company. Given the increased demand for stocks when a split is announced, it is an ample opportunity to lock in profits for investors looking to sell their shares.
Capital markets are normally considered to be efficient when prices reflect all the available inf... more Capital markets are normally considered to be efficient when prices reflect all the available information. However, there are instances when this information takes several weeks to be incorporated into share prices. This leads to investors' making uninformed investment strategies on whether to hold or dispose shares thus unable to maximize returns. The study determined stock returns of firms listed in NSE and further determined the level of efficiency of NSE. An empirical evidence of anomalies for the study was obtained from 31 companies listed at the Nairobi Securities Exchange, which traded and announced their earnings in 2007. A data collection sheet was used to collect secondary data on market indices, daily closing share prices and traded volumes for a period of 15 days before and after earnings announcement. Daily market adjusted abnormal and cumulative abnormal returns were computed and a further t-test at 5% level of significance done to determine the effect of earnings announcement on stock returns and results interpreted. Earnings announcement had a significant effect on stock returns when CAR was evaluated indicating market inefficiency but AR was not significant for individual companies. From the findings of the study, it was concluded that the Nairobi Securities Exchange is not semi-strong form efficient. Therefore, the Capital Markets Authority should eliminate the factors causing market inefficiencies, in order to boost-to-boost investors' confidence.
Corporations can raise their development capital domestically or through cross-borders listing. L... more Corporations can raise their development capital domestically or through cross-borders listing. Literature reveals that cross-listing of shares enhances firm's visibility and value, and lessens information asymmetry. However, there is scanty empirical evidence on how it affects a firm's financial performance. The objective of this study was to examine whether cross-border listing affects firm's financial performance in Eastern Africa. Financial data spanning three years before and after cross-listing was collected from financial statements of three Kenyan firms which have cross-listed their shares in USE, DSE, and RSE between 2001 and 2011. Using financial ratio analysis, liquidity, profitability, gearing and investor ratios were computed three years before and after cross-listing. The results show a low positive financial performance in terms of liquidity upon cross-listing. Market confidence as measured by P/E ratio also improved. This implied that regional cross-listing may increase firm's investor confidence. Although profitability and gearing ratios improved in absolute terms post cross-listing, this improvement was not statistically significant. In fact, the investor ratios like dividend yield reduced, but such reduction was not statistically significant. Overall, the findings provide some evidence that firms may benefit from crosslisting in terms of liquidity and confidence. Our analysis has uncovered no clear evidence of material value creation to shareholders of cross-listed firms, except improved market confidence. Firm managers and securities markets policy makers in EAC should give thorough considerations to these issues as they seek a regional approach to capital raising and stock market development.
Interest rates play a significant role of intermediation between savers and potential borrowers. ... more Interest rates play a significant role of intermediation between savers and potential borrowers. High deposit rates acts as incentives to attract savings while high lending rates discourage credit demand from potential borrowers. The margin between deposit rate and lending rate at a given time period forms an interest rate band which has implications on borrowing and deposit mobilization in the economy. In Kenya, the interest rate band has persistently remained wide despite the efforts to narrow it down. Several factors have been established that influence this wide interest rate band. However, this was before the financial reform period when commercial banks dominated the financial sector. This study was designed to evaluate the factors that influence a wide interest rate band in Micro Finance Institutions (MFIs) is new developments in the financial sector due to financial reforms in the year 2004. MFI sub sector has contributed to the competitive environment in the credit market. Factors that influence interest rate bands for these Institutions have not been documented. Purposive sampling was used to select a sample of 27 MFIs that are registered members of Association of Micro Finance Institutions (AMFI) Kenya and carry out retail Micro Finance activities. A cause effect research design was applied. Secondary data was extracted from financial statements using a data collection sheet and a questionnaire used to collect primary data. Data was collected for a four year period (2005 -2008) and was analyzed using descriptive statistics. A censored linear tobit model (Tobit) was used to test the hypothesis. The results indicated significant differentials between deposit rates and lending rates. From the findings, four factors; Growth, Financial costs, Profitability and Operating/Administrative costs significantly influenced a wide interest rate band depending on the time period. Findings from this study are expected to provide information to policy makers for decision making and policy formulation. The findings are also expected to be beneficial to the Donor community and support groups in their endeavor to promote Micro -Finance activities in Kenya
Formal credit market or financial sector seems to be inefficient in its current form to provide c... more Formal credit market or financial sector seems to be inefficient in its current form to provide credit to the poor households despite it providing wide range of financial services, particularly credit, in Kenya. There is, therefore, a need to address this problem so as to improve access to credit thereby improving the living standards of the households. The current paper aim at assessing the effect of group lending on micro credit accessibility among the low income households living in rural and suburban regions of Keiyo south district. Game theory is applied in study to intuit how group borrowers play the microfinance game with the microfinance institution. This study adopted an explanatory and exploratory design. This study was conducted in Keiyo South District in Kenya; the target population was members of Women Organizations. Data for the study was obtained using structured questionnaires. Analysis of data was done using descriptive statistics specifically mean and standard deviation. Multiple regression analysis was used to test hypothesis. Study findings indicated that joint liability and more group diversity enhances accessibility of credit in group lending. However, group size does not determine accessibility of credit in group lending.
This paper describes the relationship between trade credit and SME financial performance for a sa... more This paper describes the relationship between trade credit and SME financial performance for a sample of 50 audited Kenyan Small and Medium Enterprise firms. It discusses on how trade credit affects three measures of financial performance namely; liquidity, profit margin and return on assets. Documentary guide was used in the study to collect secondary data and the data collected were keyed and coded into SPSS package version 20. Analysis was conducted using both inferential and descriptive statistics specifically mean and standard deviation. Inferential statistics where Pearson correlation coefficient to determine the degree of relationship while Multiple regression model was used to test the hypotheses. Findings indicated that trade credit positively affected liquidity, profit margin and return on assets. The results appear to be consistent with pecking order theory by SMEs in pattern of using trade credit instead of other external source of finance.
This study aimed at establishing the Influence of investor's behaviour on the performance of Nair... more This study aimed at establishing the Influence of investor's behaviour on the performance of Nairobi Securities Exchange (NSE) indices. A reliable security market index should assist investors in making investment decisions but this is not always the case: investors at times invest in stock whose performance is not reflected in the indices. This study was guided by specific objectives which included: to establish the Influence of momentum effect, financial contagion, white noise effect, Security Price Volatility, and Herding Effect (all as independent variables) on performance of NSE indices as the dependent variable. This study was anchored to finance theories such as random walk theory, rational bubbles theory, smart money and noise trader's theory, price formation and discovery theory, and information disclosure theories. The study was based on a period of 12 years starting from January 2004 to December 2015. The population of this study comprised of all the market participants at the NSE and thus a census approach was adopted where study period was done based on each specific objective. This research relied on primary data. Primary data was collected from all the market participants. In data analysis, a significance level of 5% was used on all objectives and a multiple regression model on each objective was used. The Statistical Package for Social Sciences (SPSS) was used on primary data for analysis. The findings for primary data showed all the indices to be insignificantly influenced by the securities behaviour but the overall NSE indices performance was statistically affected. Hypotheses were tested at 0.05 level of significance. The first hypothesis on momentum effect was not rejected on primary. The second hypothesis on financial contagion was rejected and.on the hypothesis of white noise effect, it was not rejected. The hypothesis of Security Price Volatility effect was not rejected while hypothesis of herding effect was rejected. It was concluded that all the indices play a complimentary role thus the need for the retention of all. NSE is highly contagious of the events that happen around it. The study recommends that future researchers should increase the respondents to also include investors. For the objective of momentum effect, the study recommends that more exchanges be included to get a finer detail. NSE and CMA should ensure that information availed to the researchers is obtained at minimal cost or for free to encourage more research into the security markets.
The purpose of this study was to predict financial distress in Kenyan listed firms. The specific ... more The purpose of this study was to predict financial distress in Kenyan listed firms. The specific objective was to determine the working capital to total assets ratio on financial distress of listed firms. The study adopted a descriptive research design. The target population included all the firms listed at the Nairobi Securities Exchange as at 2008. Secondary data were used in this study and were obtained from the Capital Markets Authority. Purposeful sampling was employed. Both descriptive and inferential statistics were employed in the analysis using SPSS 24. The null hypothesis was tested at 0.05 level of significance. The results of the study were presented in tables and were accompanied by pertinent interpretations and discussions. It was found that an increase in the ratio of working capital to total assets of the surveyed firms was likely to increase financial distress of the surveyed firms. It was concluded that working capital to total assets ratio played a crucial role in determination of financial distress among listed firms. It was recommended that the listed firms should ensure that they have high liquidity in order to effectively mitigate financial distress.
The NSE provides one of the platforms for investment into the Kenyan economy and as such, it has ... more The NSE provides one of the platforms for investment into the Kenyan economy and as such, it has generated the interest of many investors which has resulted to the development of various Indices in NSE and has made it necessary to analyze the performance of the Kenyan Stock Market which will help in guiding investors on their diversification strategies. The study aimed at analyzing the relationship between portfolio selection and performance of the NSE with specific reference to the large cap stocks in Kenya. The study applied the Sharpe Single Index model for analysis. According to Sharpe, the SIM and Markowitz Portfolio construction model are closely related. The study found out that the optimal portfolio size is affected by the performance of the economy. Portfolios constituting of fewer securities are made up when the large capitalization stocks are performing well. On the other hand, an optimal portfolio having many securities is created when minimizing losses resulting from adverse financial market conditions.
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