PHD-Department of Accounting and Finance

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Browsing PHD-Department of Accounting and Finance by Author "Munene, Agnes Wanja"

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    Financial deepening and capital market development in Kenya
    (2018-07) Munene, Agnes Wanja
    The Kenya development plan 2007 projected an annual economic growth rate of ten percent for the next twenty five years. To achieve this objective, the capital market was identified as a critical avenue that could be used to mobilize investment funds required for implementation of vision 2030 projects. The government therefore has been implementing financial deepening strategies aimed at quickening the pace, development and contribution of the capital market. However, despite the well-intended and recurring government interventions, the capital market is still narrow, shallow and thin. This is evidenced by a slow growth in number of listed companies at NSE over the years and limited long term financial instruments such as bonds, derivatives, global depository receipts and exchange traded funds. This study therefore, examined the effect of financial deepening on capital market development in Kenya. Specific study objectives were to determine the influence of financial depth, market liquidity, financial openness, and financial access on capital market development in Kenya. The philosophy that was used in this study was positivism paradigm. The study used explanatory and non- experimental research design. The study utilized secondary time series data extracted from Capital Market Authority, Kenya National Bureau of Statistics and the Central bank of Kenya annual reports for the period 1990-2015. Based on the outcome of unit root test, time series data model (ARDL-ECM) was used in the study to define both short and long run financial deepening effects on capital market development in Kenya. Data analysis was aided by use of EViews 9.0 version. The mediating effect of gross domestic savings was tested using Baron and Kenney stepwise regression. In addition, Bauer and Curran product term was used to determine the interaction between variables. Further, since there was co integration among variables, Granger Test was carried out to establish the direction of the causal link between financial deepening and capital market development in Kenya. The ARDL-ECM coefficients revealed that financial depth and market liquidity has positive significant bearing on capital market development. Consequently, financial deepening as measured by financial access and openness has adverse but significant influence on development of capital market in Kenya. The mediation results revealed that gross domestic savings does not mediate the link between financial deepening and development of the capital. The researcher found a positive significant interaction between financial deepening and the market development. The study recommends the Central Bank in Kenya should use expansionary monetary policies as this increases money supply in the economy hence inducing capital market development. Consequently, the CMA should provide a more enabling trading environment that will enhance the speed and ease of buying and selling securities at the NSE thus increasing market liquidity. Further, the CMA should enhance access to the market by increasing more platforms for trading and also create more investor awareness on capital market product so as to increase their uptake