PHD-Department of Accounting and Finance

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Bank Characteristics, Macroeconomic Variables and Lending Rates Among Commercial Banks In Kenya
(Kenyatta University, 2018-10) Mokaya, Maubi Andrew
The banking system is considered a key component in provision of funds for economic development through financing capital accumulation, technological innovations, productivity growth and enhancing other sustainable economic growth rates and consumption. Pricing of funds through lending rates and efficient banking systems are essential for acceleration of economic growth. This would spur economic growth and enhance the financial sector development. Lending rates in Kenya have been high for a long time and various efforts have been made to arrest the situation over time notably: Introduction of the KBRR by the CBK, attempts to cap lending rates in 2010 by the Kenya National Assembly and finally the enactment of the banking amendment Act of 2016. However, the lending rates still remain high despite capping. Research done on effect of various variables on lending rates has assumed direct relationship and has produced mixed results. This study sought to investigate the effect of bank characteristics and macroeconomic variables on lending rates among commercial banks in Kenya. Specifically the study sought to: establish the effect of bank size, credit risk, and liquidity risk, operating costs, Gross Domestic Product growth rate and inflation rate on lending rates among commercial banks in Kenya. The study further sought to establish the moderating effect of political risk on the relationship between bank characteristics and lending rates among commercial banks in Kenya and to determine the moderation effect of political risk on the relationship between macroeconomic variables and lending rates among commercial banks in Kenya. The research philosophy for this research was positivism. Explanatory non-experimental research design was employed. The target population was thirty nine (39) commercial banks from whom secondary data was collected by way of census since these are the banks from which complete information could be obtained for meaningful analysis for the study period 2006-2015. Descriptive Statistics including Mean and Standard deviation and inferential statistics: Panel regression analysis and Correlation analysis were carried out. Data analysis was run on the Stata 13 package and findings presented in figures, tables, graphs and charts while deriving conclusions and recommendations from the findings of the study. The study found that operating costs, credit risk and inflation had positive effects and were significant determinants of lending rates. However the effect of GDP growth rate and bank size was found to be negative and significant. Political risk was found to have insignificant moderating effect on the relationship between bank characteristics, macroeconomic variables and lending rates among commercial banks in Kenya. Based on the findings, the study concluded that bank size, credit risk, operating costs, GDP and inflation play a significant role in determining the lending rates of commercial banks. The study recommends that government pays attention to macroeconomic variables while controlling the domestic lending rates. The study further recommends that policy initiatives that will help to keep the lending rates at a low level take into consideration the need to enhance economic growth and reduce inflation. The study recommends in conclusion that commercial banks that wish to adjust their lending rates focus on their internal factors such as bank size, credit risk and their operational cost and that the government considers deregulation on lending.
Basel Accord Requirements and Financial Performance of Commercial Banks in Kenya
(Kenyatta University, 2022) Wanjiru, Mathina Ruth; Ambrose Jagongo; Lucy Wamugo
An efficient, stable and well-functioning banking system contributes to the economic growth of a country. However, the decline in financial performance of commercial banks in Kenya based on average return on assets is of high concern among various stakeholders, that is, the average return on assets was reducing over the period of study, 4.7% in 2013, 3.4% in 2014, 2.9% in 2015, 3.3% in 2016, 2.7% in 2017, 2.7% in 2018, 2.6% in 2019 and 1.7% in 2020 despite the introduction of banking regulations in regard to capital, supervision and market discipline by the central bank of Kenya. Basel II is the second Basel accord requirements and is based on three main pillars including capital, supervisory review and market discipline. It is therefore vital for banking institutions to understand the linkage between Basel accord requirements and financial performance in order to enhance financial performance in the long run. The general objective of the study was to investigate the effect of Basel accord requirements on financial performance of commercial banks in Kenya. Specifically, the study aimed to determine the effect of capital, supervisory review and market discipline on financial performance of commercial banks in Kenya. The study further sought to establish the moderating effect of market share on the relationship between Basel accord requirements and financial performance of commercial banks in Kenya. The study was founded on asymmetry information theory, buffer theory of capital, relative market power hypothesis and agency theory. Positivism research philosophy and casual research design were employed. The target population comprised of forty-three commercial banks from which a sample of thirty-eight commercial banks was obtained. Commercial banks which were actively operating and not under statutory management during the period of study were selected. Thus, the study used purposive sampling technique. Data for the period between 2013-2020 was extracted from the bank supervision annual reports and individual bank’s published annual reports using document review guide (Appendix I). Data analysis involved descriptive statistics (maximum and minimum values, standard deviation and mean) and inferential analysis (panel regression and correlation analysis). The study conducted panel unit root test, multicollinearity test, normality test, heteroscedasticity test and autocorrelation test to avoid spurious results. The 5% significance level was used to test the research hypotheses. Correlation results show that supervisory review, market discipline and market share were positively and significantly correlated with financial performance of commercial banks in Kenya while capital had a positive insignificant correlation with financial performance. The panel regression findings showed that market discipline had a positive insignificant effect on financial performance of commercial banks in Kenya as measured by return on assets while capital and supervisory review had a positive significant effect on financial performance of commercial banks in Kenya. Market share had a negative significant moderating effect on the relationship between capital and return on assets of commercial banks in Kenya. Market share had a negative insignificant moderating effect on the relationship between supervisory review, market discipline and financial performance of commercial banks in Kenya. The conclusion of the study was that Basel accord requirements including capital, supervisory review and market discipline jointly explains the variation in financial performance of commercial banks in Kenya. Further, increase in capital and supervisory review enhances financial performance. The study thus recommends that the central bank of Kenya and other regulatory bodies like capital market authority should design banking policies for implementing Basel accord requirements and enhancing financial performance of commercial banks in Kenya.
Business Specific Factors and Credit Rationing Among Registered Small and Medium Enterprises in Kiambu County, Kenya
(Kenyatta University, 2020-08) Njagi, Gilbert Nyaga
The economic potential of Small and Medium-sized Enterprises (SMEs) have been recognized worldwide. However, the existence of credit rationing has hampered realization of the same. The prevalence of credit rationing has been evidenced by the documented SMEs financing gap which is within the range of 2. 1 to 2. 6 trillion British pounds and the proportion of SMEs financing to total lending in the world, which averages 23.4 percent in any financial year. A similar credit rationing situation is being experienced in Kenyan, such that, on average SMEs are awarded at most 17.4 percent share of amount of loans available in the credit market. Hence, the study sought to establish the effect of business specific factors on credit rationing among registered SMEs in Kiambu County, Kenya. The specific objectives were: to determine the effect of business credit history, business repayment capacity, collateral and business size on credit rationing among SMEs in Kiambu County, Kenya. The study adopted positivism research philosophy and utilized explanatory study design. The target population was 41,115 registered and active SMEs located within Kiambu County, Kenya. A sample size of 397 SMEs was randomly selected based on inclusion and exclusion criteria:-that is having applied for credit once during the period of study (2013-2017) and denied or awarded less amounts than the amount applied. Structured questionnaire was used to collect data relating to business specific factors and credit rationing, while data on inflation was collected from Central Bank website by use of data collection sheet. The data were analyzed using descriptive statistics and inferential statistics got by undertaking logistic regression analysis. The results of correlation analysis indicated that the business specific factors were sufficiently different measures of separate variables, and consequently, this study utilized all the variables in undertaking logit regression analysis. In regard to logit regression analysis, the study found that: credit history, repayment capacity and size of business have statistical significance effect on credit rationing. However, collateral have statistical insignificance effect on credit rationing. The findings from the testing of moderating effect of inflation on the relationship between business specific factors and credit rationing indicated that there exists statistically significant moderating effect of inflation on the relationship between business specific factors and credit rationing. Guided by the findings, a number of recommendations were made. First, SMEs should comply on timely credit repayment as well as repayment of the required credit installment in order to improve their future credit evaluation. Secondly, SMEs should improve on the repayment capacity by managing their sales and expenses in a manner to improve on their net profits. In addition, the proprietors of SMEs should diversify on other sources of income which may increase the repayment capacity. Thirdly, the SMEs should improve on their sizes as reflected by capital employed and sales turnover. With regards to capital employed, the proprietors can enhance the policy of maintaining retained earnings, while the government can introduce seed capital to any new coming proprietors. Lastly, the existence of moderating effect of inflation implies that the government should institute monetary policies geared to maintaining inflation to a levels which should not adversely affect the borrower and the lender
Capital Market Reforms and Microstructure Performance of the Nairobi Securities Exchange, Kenya
(Kenyatta University, 2021) Owino, Jennifer A.; Ambrose Jagongo; Perez A. Onono
The late nineties and early 2000s was an era of extensive restructurings which saw a series of reforms taking place in most emerging markets. The Kenyan Government in a bid to match the efforts of other emerging economies embarked on revitalizing the financial sector with the aim of promoting the growth of the capital market. The huge investment in reforms aimed at improving the microstructure performance of the securities market and to consequently eliminate the problems facing the Nairobi Securities Exchange. Despite undertaking the reforms, the stock market still experiences a number of challenges such as low listing, stock prices volatility, illiquid stock market, among others. This study aimed at establishing how capital market reforms have affected the microstructure performance of the Nairobi Securities Exchange, in terms of efficiency, volatility, and liquidity, specifically to investigate the effect of entry of foreign investors, demutualization of the stock market, and dematerialization of securities on the microstructure performance of the stock market, likewise to establish the moderating effect of market size and time on the relationship between the dependent and independent variables. From existing literature, it is not clear whether undertaking reforms in the capital markets were beneficial or not. Different studies have produced mixed results with some stock markets reporting positive results and others negative. Furthermore, some of the most recently undertaken reforms in the Nairobi Securities Exchange have not been explored and therefore had to be given adequate attention. This study which employed an explanatory research design was anchored on capital market efficiency theory, market microstructure theory, liquidity and agency theories. A census of all the 63 listed companies was used. Annual Gross Domestic Product values, number of Central Depository System accounts opened, weekly closing of share prices and the market index for the period 2004-2017 were used as the data for the study. Abnormal returns, standard deviation, turnover ratio as well as market capitalization ratio were also determined. A multiple regression analysis was performed to establish how reforms have affected the microstructure performance of the securities exchange. The study found that entry of foreign investors into the Nairobi Securities Exchange did not have a significant effect on microstructure performance of the securities market. The study also established that demutualization of the Nairobi Securities Exchange influenced stock market liquidity, efficiency, and the overall market microstructure performance. However, the two measures of demutualization were found to influence the performance in opposite directions. Whereas an increase in ownership concentration improved liquidity, efficiency and the overall market microstructure of the NSE. An increase in ownership composition led to a decrease in the performance of the NSE. Dematerialization of securities achieved its desired results as it improved liquidity, volatility, efficiency as well as the overall microstructure performance of the bourse. The study also found that although the size of the market had no significant effect on the relationship between capital market reforms and microstructure performance of the Nairobi Securities Exchange the passage of time was important as it influenced the relationship between the study variables. The study therefore recommends that the Capital Market Authority should relax listing requirements to encourage more firms to be listed in Nairobi Securities Exchange as well as encourage public participation in the stock market. Additionally, since dematerialization is just a precursor to automation, the securities exchanges that are not fully automated should ensure that they go the full course to achieve the desired results
Capital Structure and Financial Performance of Small and Medium Scale Enterprises in Buganda Region, Uganda
(Kenyatta University, 2021) Mugisha, Henry; Job Omagwa; James Kilika
Small and Medium Scale Enterprises are known to be drivers of economic growth in Uganda. According to Uganda Investment Authority, the projected 5.5% economic growth by 2030 was dependent on a sustained performance trend of SMEs. However, SMEs in Uganda have witnessed a persistent performance decline of up to 70 % business failure rate in 2018 from 50% in 2004, a problem attributed to persistently low levels of profitability of the SMEs. Empirical literature on the capital structure-financial performance relationship has remained contradictory in both the developed and emerging economies alike. Hence, the study sought to determine the effect of short-term debt, long-term debt, and equity capital on the financial performance of SMEs in the Buganda region, Uganda as well as the moderating and mediating effects of market conditions and financial capacity respectively on the capital structure-financial performance relationship of SMEs in Buganda region, Uganda. The study was anchored on tradeoff, pecking order, stakeholder, as well as the free cash flow theories. Positivist research philosophy was adopted as well as the analytical cross-sectional research design. Using stratified random and purposive sampling techniques, a sample of 453 respondents was selected from a target population of 133,454 SMEs. Data was analyzed using descriptive statistics, correlation as well as multiple regressions analyses (using STATA version 14). Hypotheses were tested at a 0.05 level of significance. Normality, multicollinearity, and heteroskedasticity tests were conducted preceding multiple regression analysis. Research ethical issues were adhered to accordingly. The study found that short-term debt had a negative and significant effect on financial performance; long-term debt had a negative and insignificant effect on financial performance while Equity capital had a positive and significant effect on financial performance. Market conditions had a positive and significant moderating effect, while financial capacity indicated a significant and partial mediation effect in the relationship between capital structure and financial performance. The study recommends that SMEs should employ less amounts of debt and adopt more of own funds in their capital structure to improve profitability. Policymakers should design policies that promote mobilization of own capital for SMEs to discourage borrowing as well as enhancing their access to the equity markets. SMEs should assess the market conditions as well as maintain adequate liquidity and solvency levels in the process of deciding the capital structure mix of their operations to optimize the output of their financial investment.
Demographic factors and income tax compliance among small and medium enterprises operated as sole proprietorship businesses in Soroti district, Uganda
(Kenyatta University, 2023-06) Otai, Isaac Peter
Determinants of Acquisition of Financial Services by Micro and Small Enterprises in Langata Sub-County of Nairobi County, Kenya
(Kenyatta University, 2015) Ndede, Fredrick W. S.
Globally Micro and Small Enterprises have been acknowledged as agents of economic development. They have been cited as being the seedbed to the medium and large enterprises. MSEs have been known for their crucial role in creation of employment, income generation and supplementing the provision for goods and services by large enterprises as well as eradication of poverty. The contribution of MSEs in the creation of wealth and support to the development and growth of medium and large scale enterprises has been enormous. In recognition of their contribution to development, several governmental and non-governmental agencies have been set up to support their activities. The failures of MSEs to recognize the important role played by external sources of finance usually pose a serious challenge to their functions. Since MSEs regularly suffer serious financial constraints, they are yet to realize their full potential as agents of economic growth. In Kenya for example, the failure rate of MSEs is still as high as 65 percent. The general objective of this study was to investigate the determinants of acquisition of financial services by MSEs in Langata Sub County of Nairobi County in Kenya. The specific objectives of the were to determine the relationship between legal and regulatory framework, level of education and entrepreneurial training, demographic factors as well as economic factors and acquisition of financial services by MSEs in Langata Sub County. The study design was descriptive with a target population consisting of 2,098 micro and small enterprises. A sample size of 250 businesses was determined through stratified random sampling technique by sector. Primary data on the selected businesses were collected using semi-structured questionnaires. The response rate was 231 firms representing 92.4 percent. Data was analysed using frequency distribution, chi-square tests, correlation analysis and multinomial regression analysis. The study found that there was a negative but significant relationship between legal and regulatory framework, level of education and entrepreneurial training and acquisition of financial services by MSEs. Demographic factors also had a negative but significant relationship with acquisition of financial services by MSEs in Langata. For practice the study recommended that: firstly, accessibility to financial services can be enhanced by financial intermediaries and the government by working on a framework that relaxes the complexities in loans acquisitions. Secondly the government should enhance entrepreneurship financial training, including cascading it through formal education system and thirdly, financial services providers should develop financial products that are inclusive enough to carter for the different demographic groups.
Determinants of lease financing decisions by non-financial firms quoted on Nairobi Securities Exchange, Kenya.
(2014-03-06) Simiyu, Mungami Eddie; Ombuki, C.; Wawire, N. H. W.
Access to finance remains a key issue for firms in emerging markets, Kenya included. 60 per cent of firms in Kenya consider access to finance as major barrier to growth. One of the solutions this problem is the use of lease fmance. However, access to lease finance is determined by various factors that this study investigated. The specific objectives' of the study were; to analyze the effect of company specific factors on leasing decisions corporate environment, assess the effect of corporate governance on leasing decisions and determine the effect of lease specific environment factors on leasing decisions by firms quoted on Nairobi Securities Exchange. Mann-whitney test, Pearson correlation and logit model were used find out the effect of share ownership structure; debt capacity; level of profitability; size; cash flow conservation; legal environment; accounting treatment; chief executive share ownership; institutional investor ratio; cross listing; liquidity; tobin q; cashflow; cost of funds; industrial type; effective tax; investment opportunities and growth; agency problem (Industry Factor), availability of secondary market; pricing, bankruptcy costs, risk sharing, access to capital market, regulatory environment, and judicial efficiency on lease financing decisions by non-financial firms quoted on the Nairobi Securities Exchange. The research design was descriptive. The study used triangulation approach where both secondary and primary data were collected. Secondary data were collected through a desk review of the financial statements of all nonfinancial companiesfor the period between 2004 to 2009, Primary data were collected using a questionnaire, in which both open-ended and closed-ended questions were administered to all 40 non-financial companies, The questionnaires were dropped and picked by the researcher and a trained research assistant. Univariate analysis was done using descriptive statistics, Mann-whitney tests and Chi-square test. Multivariate analysis was done using panel logit regression. The results indicated that cost of capital, financial distress, size, share ownership, management compensation, total debt ratio, chief executive share ownership were important in explaining lease decisions in the case of operating leases and cost of capital, size, performance, management compensation, chief executive share ownership were important for capital leasing decision. The results of the study indicated that just like in developed countries effective tax rate and size of the firms were important in making leasing decision. However, financial distress and leverage were not major consideration by firms in making leasing decision.
Effect of bank size and financial risk exposure on financial performance of commercial banks in Kenya
(Kenyatta University, 2018-03) Konya, Nelly M.
The study sought to establish the effect of bank size and financial risk exposure on financial performance of commercial banks in Kenya. The specific objectives of the study were: to determine the effect of bank size on financial performance of commercial banks in Kenya; to establish the effect of financial risk exposure on financial performance of commercial banks in Kenya; to determine the moderating effect of macroeconomic variable on bank size and financial performance of Commercial Banks in Kenya; and to determine the moderating effect of macroeconomic variable on financial risk exposure and financial performance of Commercial Banks in Kenya. Studies on bank size and financial risk exposure have presented mixed results and they have not been conclusive on how they affect financial performance. Despite the empirical evidence cited demonstrating that it is possible to conduct a meaningful analysis of financial performance, the major conclusion is that most models focus on a single variable instead of a set of variables. The study factored in bank size and financial risk exposure variables and it was done in the Kenyan context so as to determine the effect of bank size and financial risk exposure on financial performance of banks in Kenya. The descriptive research design and a positivist approach were adopted. The Berger and Hannan approach was used establish the relationship between bank size, financial risk exposure and the moderating effect of macroeconomic variable on the financial performance of commercial banks in Kenya. All the 43 commercial banks were used during the study. Secondary data was obtained from Kenya Bankers Association and Central Bank of Kenya’s comprehensive archive of financial data for the 43 commercial banks for the period 2009 to 2015. Various diagnostic tests were carried out to and the study data structure was panel hence Stata was employed to determine the relationship between the variables. Under financial performance, average return on assets in Kenya is consistent with average return on assets in Sub-Saharan Africa implying that Commercial Banks’ return on assets in Kenya is about average of Sub-Saharan Africa. The results indicate that bank size plays a major role in impacting on the financial performance of commercial banks in Kenya. The results also imply that the main source of financial performance in the Kenyan banking industry is as a result of structure or collusive power. Under financial risk exposure, market risk has minimal effect on financial performance of commercial banks in Kenya. This means that the overall market movement in the financial market has minimal impact on the financial performance in the banking industry. The Kenya GDP growth rate shows a minimal effect on the relationship between bank size and financial risk exposure on the financial performance of commercial banks in Kenya. In conclusion, banks need to grow bank sizes where they enjoy both economies of scale and scope. Treasury should design policies that will increase the capital size, liquidity requirements and deposit insurance premiums; this may assist in enlarging the size of banks to a level where they are fairly equal with none having relative market power to drive the market. Areas of further research may include and not limited to considering other variables besides the financial risk exposure and bank size in determining their effect on the financial performance of commercial banks in Kenya. The research may as well be done in the East African or African context. The further studies should seek to leverage on mixed research approaches that utilize both quantitative and qualitative research.
Effect of Business Succession on Performance in Kisumu County, Kenya
(Kenyatta University, 2021) Maende, Chrispen B.O.H.; Jagongo Ambrose Ouma; Paul P.W. Achola
The economic landscape of most nations, Kenya included, remains dominated by small and medium businesses which include family businesses. The importance of such businesses cannot be overemphasized, economically and socially. However, lack of business longevity is a cause for concern. Succession planning is the process of identifying and preparing suitable employees through mentoring, training and job rotation, to replace key players within an organization as those key players leave their positions for whatever reasons such as retirement, advancement and attrition. A few businesses survive to the second generation and even fewer make it beyond the third generation. Currently, there are a few family owned businesses in Kenya that have survived to the third and fourth generation. The literatures about family businesses suggest that there are a number of family businesses that fail in transitioning from the first generation to the second generation. Family businesses lack a practical understanding of succession planning resulting in the implementation of weak succession plans. The specific objectives of the study were to establish the relationship between business succession process on business performance in Kisumu Central Business District; to evaluate the relationship between handing over procedures of business on business performance in Kisumu Central Business District analyze the relationship between the demographic characteristics influence on business performance in Kisumu Central Business District; to examine the moderating effect of external factors on the relationship between business succession process on business performance in the Kisumu Central Business District. The research design was descriptive survey, data were collected by using a questionnaire through drop and pick method. Target population of 211 (two hundred and eleven) businesses (see appendix II), which were businesses in manufacturing, service, wholesaling and retailing industries. Testing the questionnaire for reliability and validity was done. The unit of analysis comprised of manufacturers, wholesalers, retailers and service firms. These findings revealed that there is a significant positive relationship between business succession processes on performance of businesses in Kisumu Central Business District. Marital status and experience were found to have significantly affected the performance of businesses in Kisumu Central Business District while age bracket and education had insignificant effect on business performance. The findings implied that in most businesses, successful and smooth business succession process enhanced its performance. Procedures of business succession significantly affected the performance of retail business. Educated business owners or proprietors were more likely to have high performing retail business than less educated colleagues. External factors (Legal Structure and Economic Factors) have a significant moderating effect on the relationship between business succession process and performance of retail business. The study concluded that businesses that intend to survive beyond their founders must have a smooth succession process. Smooth change of leadership, smooth transfers of ownership and smooth transfer of control ensure that the performance of business is not significantly affected. The study recommended that founders/owners of the businesses should start working on the succession process early enough to ensure the process is smooth and does not have negative impacts on business performance.
Effect of demand-side factors on access to external finance by micro, small and medium manufacturing enterprises in Kumasi metropolis, Ghana
(2014-08-19) Frimpong, Siaw
The aim of this study was to analyze how demand-side factors affect access to external finance by micro, small and medium manufacturing enterprises (MSMMEs) in the Kumasi Metropolis, Ghana. The demand-side factors that were used in the study were firm characteristics (age, size, legal form and asset tangibility), financial management practices (preparation and usage of financial information, business plan, capital budgeting and working capital management) and entrepreneur characteristics (age, gender, education and experience). The study was conducted among MSMMEs in the Kumasi Metropolis, in the Ashanti Region of Ghana. The target population of the study was 4400 MSMMEs. The sample size of the study was 440 MSMMEs made up of 248 micro firms, 137 small firms and 55 medium enterprises. This study employed explanatory survey design utilizing quantitative methods in data collection and analysis. Data was analyzed using descriptive statistics such as means and frequency distribution. Pearson‘s correlation was used to test the relationship between firm characteristics and financial structure. Logistic regression was also used to test the relationship between demand-side factors and access to external finance. Logistic regression was used because of the dichotomous nature of the dependent variable, as firms are grouped as having access or no access to external finance. The results of the study show that there is a positive relationship between financial structure and firm characteristics (age, size, legal form and asset tangibility). The study found that some of the demand-side factors analyzed impacted significantly on access to external finance. These include size of the firm, educational background and work experience of the entrepreneur and financial management practices such as preparation and use of financial information, business plan and capital budgeting. It is recommended that firms should incorporate good financial management practices such as preparation and usage of financial information in their operations. It is also important for entrepreneurs to incorporate business plans in their operations as this impact positively on access to external finance. Education and experience of the entrepreneur were found to significantly impact on access to external finance. There is therefore the need to design short courses in the area of financial management practices for entrepreneurs, particularly those with lower educational background as education is an important factor in accessing external finance. Size of the firm was also found to be a significant factor affecting access to external finance and therefore small firms should come together to form bigger firms in order to attract external finance. Ghana government should be directly involved to help eliminate the financing gap faced by MSMMEs through direct government interventions through public banks, credit guarantee schemes and other forms of subsidized financing. The procedures involved in seeking external finance should be simplified to encourage more MSMMEs to seek external finance. Banks and other financial providers should have a department solely devoted to the financing needs of MSMMEs and develop products purposely for MSMMEs.
Effect of Financing Decisions on Performance of Nonfinancial Companies Listed in the Nairobi Securities Exchange, Kenya
(Kenyatta University, 2014-06) Mwangi, Lucy Wamugo
Corporate failure among companies in Kenya has often been associated with the financing behaviour of the firms. Momentous efforts to revive the ailing and liquidating companies have focused on financial restructuring. Corporate managers, therefore, have the critical responsibility of understanding how alternative financing decisions influence performance so that they can work towards securing successful performance while also mitigating against corporate failure. Suboptimal financing decisions can lead to corporate failure. A great dilemma for management and investors alike is whether there exists an optimal financing policy and how various financing decisions influence business performance. This study therefore investigated the effect of financing decisions on the performance of non-financial companies listed in the Nairobi Securities Exchange (NSE), Kenya, in a bid to offer a solution to this dilemma. The study further sought to establish the interaction effects of the various components of financing decisions on the performance of non-financial companies listed in the NSE. In order to provide a holistic solution, the thesis additionally evaluated the mediating role of internal cash flow available on the relationship between financing decisions and performance. The study employed an explanatory non- experimental research design. A census of 42 non-financial companies listed in the Nairobi Securities Exchange, Kenya was taken. The study used secondary panel data contained in the annual reports and financial statements of listed non-financial companies. The data were extracted from the Nairobi Securities Exchange hand books for the period 2006-2012.The study applied panel data models (random effects) based on the outcome of Hausman specification tests to determine the effect of financing decisions on performance of non-financial companies listed on the NSE, Kenya. The mediating effect of internal cash flow available was tested using the step-wise regression technique by employing the logic of Baron and Kenny (1986). Feasible Generalised Least Square (FGLS) regression results revealed that financial leverage had a statistically insignificant negative association with return on assets (ROA), but a significant negative relationship with return on equity (ROE).Increased aggressiveness in financing policy had a positive effect on both measures of performance while increased aggressive investing policy was found to affect performance positively. Dividend policy had a statistically 'significant positive effect on ROA but an insignificant negative effect on ROE. The study also found that the interaction between the financing decision components had a significant effect on performance. Furthermore, the results of Sobel-Goodman mediation test indicated that internal cash flow available had no mediating effect on the relationship between financing decisions and performance of non-financial companies listed in the NSE. The study recommends that managers of listed non-financial companies should reduce the reliance on long term debt as a source of finance. Further it is recommended that an aggressive financing policy and a conservative investing policy should be employed to enhance the performance of non-financial companies listed in the NSE, Kenya. The government should employ fiscal and monetary policies through the central bank to reduce the cost of borrowing from financial institutions. Most importantly managers should make financing decisions in relation to each other and not in isolation.
Effects of Entrepreneurial and Firm Characteristics on Access to Venture Capital by Small and Medium Enterprises in Nairobi City County, Kenya
(Kenyatta University, 2019) Muchira, Bancy Wawira
Small and medium Enterprises are vital for economic growth especially in the developing countries. However, empirical evidence shows that most of these enterprises fail due to poor/lack of access to finance. Access to venture capital by the small and medium enterprises could be a plausible alternative but unfortunately research has pointed out that majority of the enterprises do not access venture capital financing, which is considered an important option for small and medium enterprises trying to grow. This study therefore sought to investigate the effect of entrepreneurial and firm characteristics on access to venture capital by small and medium enterprises in Kenya. The study was guided by the following specific objectives; To determine the effect of entrepreneur‟s innovativeness on access to venture capital, to establish the effect of entrepreneur‟s managerial competency on access to venture capital, to determine the effect of firm‟s age on access to venture capital, to establish the effect of firm‟s sector of operation on access to venture capital, to determine the mediating effect of firms performance on the relationship between entrepreneurial and firm characteristic and access to venture capital and lastly to determine the moderating effect of risk reduction strategies on the relationship between entrepreneurial and firm characteristics on access to venture capital by Small and medium size enterprises in Kenya. Agency theory underpinned the study. The study adopted the explanatory non experimental research design and positivism philosophy guided the study. Target population of the study was 334 Small and medium size enterprises ranked by KPMG between 2008 and 2017 in their annual survey. Proportionate random sampling technique was used to select the firms. Primary data was collected by semi structured questionnaire, using drop and pick method. Both descriptive statistics and inferential statistics were used to analyze the data. Nested multinomial logit model was used to establish the effect of entrepreneurial and firm characteristic on access to venture capital financing. The results reveal that; the influence of an entrepreneur‟s innovativeness on access to venture capital financing is statistically significant. Secondly, managerial competency had positive influence and was statistically significant to access to venture capital financing among SMEs. Third, the results show that SMEs in the service industry benefits more from venture capital as opposed to those in the non-service industry. Fourthly, the results show that a firm‟s age has a positive though statistically insignificant influence on access to venture capital financing. Fifth, there is no mediating relationship between a firm‟s performance on the relationship between entrepreneurial and firm characteristic and access to venture capital financing. Finally, there exists a moderating relationship between entrepreneurial and firm characteristic on access to venture capital financing. From the findings, a number of recommendations can be made. First, SMEs should continue investing in enhancing entrepreneurial innovativeness as it increases the propensity of their enterprises from accessing venture capital financing. Secondly, given that managerial competency positively affects SMEs access of venture capital financing, firms should invest in human capital of their management through various strategies. For instance, investing in training gives employees the opportunity to develop new skills and accumulate the knowledge they need in order to achieve specific organizational and personal goals with the priority being to train managers so that they can be able to cope with the challenges which hinder business success.
Effects of Tax Reforms on Compliance of Small and Medium Enterprises in Kenya; Case of Kisumu Town
(Kenyatta University, 2015) Ondimu, O. M.
With increased expenditure there is demand for more tax revenue calling for revenue Enhancement measures. In Kenya the SMEs are non-compliant despite having huge tax Revenue potentials. From mid 1980s the government initiated tax reforms to enhance Compliance by widening tax bases and improve tax administration. Consequently Government reorganized KRA, changed personal relief (by 10%), granted amnesty on non-compliant taxpayers with arrears (up to 11 June 2004) and turnover tax at 3% (from 1 January 2008). However, SMEs sector are characterized with low compliance levels. It Was important establish effects of tax reforms on tax compliance of SMEs in Kenya with use of Kisumu Town. Specifically the study sought to determine effects of turnover tax on compliance of SMEs determine effects the KRA tax administration reforms on SMEs compliance and establish behaviors of SMEs in Kisumu Town which affect tax compliance. The study adopted descriptor-exploratory research design with each Kisumu KRA officer and business constituted one sample unit and respondents. Samples of 275 (involving 219SMEs and 56 KRA officers) were selected from target population of 505 SMEs and 56 Kisumu KRA officers using stratified simple random sampling approach and census for KRA officers. The study used both primary (from questionnaires) and secondary data. These instruments were administered by the researcher with help of research assistants. Data collected were analyzed using both descriptive statistics (frequencies, percentages and means) and inferential statistics (Pearson’s Moment of correlation, regression); using SPSS. The findings revealed that turnover tax system affects and accounts for 28.8% [r (214) =439, p<0.01] SMEs’ tax. KRA administrative reforms affects and accounts 36.8% SMEs tax compliance [r (214) = 617, p<0.01].KRA was effective (mean ratting of 3.869) butt ineffective in facilitating SMEs to voluntarily comply. KRA was effective in providing taxpayers information and guidance. KRA was Effective in use of technology and in data warehousing. There is a fair rating of reducing compliance burden of the SMEs (mean responses being 3.562). SMEs tax behaviors negatively affects tax compliance [r (214) =-542, p<0]. There was negative influence from the referent groups and SMEs (68%; 146) do not use tax agents. The turnover productivity for the last six year has been increasing from the time of start of tax reforms targeting SMEs in Kenya. This is based on the efficiency ratio of 0.35 percent in the year 2008 which has increased to the current 0.4. From the findings, the study concludes that the tax reforms and tax behaviors significantly affect tax compliance of the SMEs in Kisumu Town. The study recommends that continuous emphasis on creation of awareness and monitoring of the compliance of the SMEs. Review the tax laws and more enforcement of the SMEs tax laws. KRA should carry out more profiling of the SMEs and research more on the SMEs to understand the SMEs. Publicize prosecution non-compliance; provide incentives for compliance and opportunity to voluntarily disclose before the application of penalties. There is need for the government to enhance SMEs’ Trust with the tax reforms for voluntary compliance.
Exchange rate volatility and stock prices of companies listed on Nairobi securities exchange, Kenya
(Kenyatta University, 2018-05) Onyango, Austin O.
Kenya has experienced continuous exchange rate volatility since October 1993 when the fixed exchange rate regime was abolished and floatation of the Kenya shilling was introduced. The continuous volatility of exchange rate brings about increase in foreign exchange risk exposure which in turn leads to increase in transaction costs of companies. Higher transaction costs lower the expected earnings of companies which subsequently affect the market price of stocks hence, the value of companies and the investors’ wealth. Stock prices represent returns which investors expect from a given security. Hence, variables that cause stock prices to change are of importance to investors and the economy at large. Changes in stock prices and the trend of changes have always been of interest in the capital market given their effect on the stock market stability and strategies adopted by investors. The stock market plays a vital role of intermediation between borrowers and lenders hence uncertainty in the market impacts negatively to the economy. For the period 2007 to 2014, Kenya experienced high exchange rate volatilities which affected the performance of the Nairobi Securities Exchange. Stock market performance is key in determining if investors’ portfolio of stocks will bring adequate returns based on their expectations. Therefore, variables that influence the performance of the stock market are important to investors, stockbrokers, and the regulatory authorities. This study examined the interaction between foreign exchange market and the stock market in Kenya, with the aim of identifying the effect exchange rate volatility on stock prices of companies listed in Nairobi Securities Exchange. Further, the study sought to establish the moderating effect of selected monetary policy variables on the relationship between exchange rate volatility and stock price movement in Kenya. The study employed an explanatory non-experimental research design. A census of 61 companies listed in the Nairobi Securities Exchange, was taken. The study utilized monthly data for the period of 96 months from January 2007 to December 2014. Pairwise Granger causality test revealed that causality runs from exchange rate volatility to stock prices. Regression analysis results revealed the existence of statistically significant negative relationship between daily mean exchange rate, monthly mean exchange rate, and combined drivers of exchange rate volatility on stock prices of companies listed in Nairobi Securities Exchange. However, regression results revealed that inflation rate had insignificant negative relationship with stock prices. The moderating monetary policy variables were tested using the stepwise multiple regressions. Stepwise regression results revealed that there is significant moderating relationship between combined drivers of exchange rate volatility and stock prices of companies listed in the NSE. Therefore, monetary policy variables have a moderating effect on the relationship between drivers of exchange rate volatility and stock prices in Kenya. The study recommends that Capital Markets Authority should fast-track the establishment of Derivatives Exchange Market in Kenya. The derivative instruments help economic agents to improve their management of both market and credit risks hence increasing the market resilience to shocks. The establishment of derivatives market will further boost attraction of both domestic and foreign participation at the Nairobi Securities Exchange thereby benefiting all sectors of the economy. The study further recommends that portfolio managers should continually analyse the behaviour of foreign exchange market with a view to disposing of stocks in their holdings if they predict increased exchange rate volatility. Otherwise, portfolio managers should increase their holdings when they predict a decrease in exchange rate volatility. Most importantly, both regulatory bodies and corporate managers should make strategic decisions in consideration of all identified variables since these variables are not in isolation.
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
Financial Flexibility and Corporate Investment among Non Financial Companies Listed On Nse, Kenya
(Kenyatta University, 2015-12) Koori, Maimba Jeremiah
The existing evidence indicates that listed companies on the Nairobi Securities Exchange Kenya are financially flexible. However, these firms have not managed to undertake corporate investments of the magnitude achieved by other countries where firms are financially flexible. Previous studies have shown that financial slack, spare debt capacity and dividend decisions directed at maintaining financial flexibility in corporate entities can enhance investment ability of the firms. This disparity therefore motivated this study which sought to link the measures of financial flexibility and corporate investment in the Kenyan context between 2002 and 2013. This study therefore sought to establish the effects of debt capacity, cash holdings, and dividend decisions on corporate investments. The study further sought to establish the moderating effects of ownership concentration on the relationship between financial flexibility and corporate investment. The pecking order theory underpins this thesis since the management of companies have to make investment decisions based on the financial resources available both from internal and external sources with a view of maximizing the wealth of the shareholders. The respective variable indicators were used to determine the effects. Explanatory and non experimental research design was used to fulfill the research objectives. All 28 non financial companies listed on the NSE and fulfilled the set conditions in the period under the study were considered. Secondary panel data collected was sourced from annual financial reports of quoted companies and records maintained at Nairobi Securities Exchange. The study applied panel data model (fixed effects) based on the outcome of Hausman specification tests to determine the effects of financial flexibility on investment decisions of non financial listed companies on NSE, Kenya. Feasible generalized Least Square regression results revealed that leverage and asset tangibility being indicators of debt capacity had a positive association with investment decisions. Free cash flow, an indicator of cash holdings, had positive relationship with investment decisions whereas; profitability an indicator of dividend decisions had positive relationship with investment decisions. The study also found out that the moderating effects of ownership concentration on the relationship between financial flexibility and investment decisions had no effect. The study recommends that managers of listed non-financial companies should maintain accumulating reserves of borrowing power that allows them to have a better access to the capital market when faced with positive shocks to their investment opportunity. The study also recommends that managers of non financial listed companies should increase free cash flow as it has been established that investment ability of these companies rely heavily on it. Having established that free cash flow increases the ability to invest, there is need to carry out further study in order to establish whether the investments undertaken are value adding or whether they are just an expression of empire building.
Financial Innovations and Financial Performance of Microfinance Banks in Kenya
(2022) Odongo, Charles Omwanza; Ambrose O.Jagongo; Fredrick W.S. Ndede
The microfinance banks in Kenya have experienced a fluctuating and mixed performance between 2014 and 2020. For example, the financial performance measured in terms of pre-tax profits and return on assets was 1,002 million shillings and two percent in 2014 respectively. Further in 2020, the banks recorded a pre-tax loss of 2,240 million shillings and a return on assets of negative three percent. This presented a threat to their financial soundness, efficiency, stability, and sustainability, which has raised concern among financial scholars, regulators, and practitioners. Firms' financial performance has long been associated with financial innovations. Nonetheless, the available empirical literature failed to provide a consensus on the effects of financial innovations such as product innovations, process innovations, and institutional innovations on financial performance. In view of this, the current study assessed the effect of financial innovations on the financial performance of Kenyan microfinance banks for the period 2014-2020. The specific objectives were to examine the effect of product innovations, process innovations, and institutional innovations on the financial performance of microfinance banks in Kenya. In addition, the study determined the moderating effect of the regulatory framework and the mediating effect of competitiveness on the relationship between financial innovations and financial performance. The study was guided by financial intermediation, constraint-induced innovation, transaction cost innovation, regulation innovation theories, and Merton’s Market theories of innovation. The positivism research paradigm was employed. The assessment was guided by a descriptive research design. The assessment targeted all the 14 microfinance banks registered by the Central Bank of Kenya. A census was carried out and a document review guide was used to collect secondary data from the financial records of these banks. Means, standard deviations, median, maximum, minimum, skewness, and kurtosis were used for purposes of descriptive analysis while panel multiple regression and correlation were used for inferential analysis. The study found and concluded that financial innovations positively and significantly affect the financial performance of microfinance banks. Specifically, product innovations and process innovations have significant statistically positive effects while institutional innovations have no statistically significant effect on the financial performance of microfinance banks in Kenya. The study further established that the regulatory framework moderated the relationship between financial innovations and financial performance. The research also established that competitiveness mediated the relationship between financial innovations and the financial performance of microfinance banks. The study concluded that financial innovations enhance the financial performance of microfinance banks. Consequently, the study recommended that the Central bank of Kenya reward innovative banks through tax reliefs and strengthen its regulation and oversight while the management should focus on product differentiation strategy, aggressive advertising, and research and development to foresee new and innovative ideas. The study also recommends that microfinance banks should enhance their competitiveness by increasing their market shares to improve their financial performance.
Financial Management Decisions and Firm Value of Selected Firms Listed at Nairobi Securities Exchange, Kenya
(Kenyatta University, 2021) Gitagia, Francis K.; Lucy Wamugo Mwangi; Job Ombongi Omwagwa
The declining and highly volatile firm value observed in the Nairobi Securities Exchange (NSE) over the last decade has raised concern among scholars and financial practitioners. The Kenyan securities market has undergone periods of decline in firm value as shown by reduction in market capitalization from a high of 6161 points in year 2007 to a low of 2789.64 points in year 2016. Firm’s financial management decisions have long been linked with firm value; However, there has not been a consensus amongst empirical studies on the effect of financial management decision variables including capital structure, dividend, Cash holding and corporate investment on firm value. The study sought to determine the effect of financial management decisions on firm value of selected firms listed at Nairobi Securities Exchange. The specific objectives were: to determine the effect of capital structure decisions, dividend decisions, cash holding decisions, and corporate investment decisions on firm value of selected firms listed at the NSE, Kenya. The study further assessed the moderating effect of Gross Domestic Product and political risk on the relationship between financial management decisions and firm value. The study was anchored on: Shareholder value theory, pecking order theory, Signaling theory and trade-off theory. A census of 46 firms was carried out. The study utilized secondary data from financial reports obtained from NSE handbooks and Kenya National Bureau of Statistics for the period between 2008-2016. Data was analyzed using descriptive statistics. The study found that capital structure, dividend decisions and corporate investment had a positive and statistically significant effect on firm value. On contrary, cash holding was found to have a statistically significant negative effect on firm value. Whisman test of moderation further indicated that GDP had significant positive moderation effect on the relationship between each of the financial management decision and the firm value. On contrary, political risk was found to have a significant negative moderation effect on the relationship between capital structure, dividend decisions and corporate investment and the firm value. Further, political risk had insignificant negative moderating effect on the relationship between cash holding and firm value. The study concluded that firms with high debt levels relative to equity, pays dividends and increases corporate investment has high value whereas those with high cash holding have low firm value. Consequently, the study recommended that, corporate managers issue more corporate debt, increase the dividend payout, reduce free cash flows and increase corporate investments. It further recommended that the government reduce taxation on corporate bond interest, introduce interventions to reduce corporate cost of debt (through CBK), and increase capital allowances to encourage investments in long term assets. Additionally, NSE to work with other securities exchange to harmonize regulations to enable cross listing while CMA comes up with regulations regarding stock buybacks.
Financial Soundness and Efficiency of Deposit Taking Savings and Credit Cooperative Societies in Kenya
(Kenyatta University, 2019-05) Kimutai, Carolyne Jebiwott
The deposits taking Savings and Credit Cooperative Societies (DTS) have continued to play a critical role in Kenya’s financial sector in terms of access, savings mobilization and wealth creation. According to the Kenya’s economic blueprint Vision 2030, is a key player to achieving the 10% annual economic growth target. Given the importance of the sector in economic growth, there has been considerable interest in their efficiency. In Kenya, DTS have been reported to have low efficiency, with the average efficiency being less than one against a general expectation of an efficiency level of one. There is limited empirical literature to explain the inefficiency of DTS in Kenya. In view of this, the study sought to establish the effect of financial soundness on efficiency. The specific objectives of the study were: to determine the effect of asset quality, capital adequacy, liquidity and earnings rating on efficiency of DTS. The study further sought to establish the moderating effect of size of DTS on the relationship between financial soundness and efficiency. The study was anchored on Buffer Capital Theory, Economic Efficiency Theory, Asymmetric Information Theory, Modern Portfolio Theory and Shiftability Theory of Liquidity. The study adopted positivist philosophy and explanatory research design. The target population comprised 110 DTS as per SASRA report for the year 2017.The study used secondary data that was collected from the audited financial statements for the period 2012-2016.Data was collected using a document review guide. Data Envelopment Analysis methodology was used to generate efficiency scores. Both descriptive analysis which included mean and standard deviation and inferential statistics which included panel Tobit regression was done and was aided by s tata version 11 Tests conducted include: normality, heteroskedasticity, multicollinearity, autocorrelation, stationarity and model specification tests. Issues relating to the ethical conduct of research were upheld, ensuring that permission was sought from relevant authorities before collecting data. The study findings were as follows: DTS have not achieved efficiency however, the efficiency level on average has increased over the study period. Further, the descriptive analysis indicates that the mean of capital adequacy and liquidity is above the required minimum by the regulator. The mean of asset quality is above the required maximum by the regulator. In addition, the correlation analysis indicates that asset quality, earning rating and liquidity have a weak negative relationship with efficiency while capital adequacy has a weak positive relationship with efficiency. Lastly, asset quality, capital adequacy and liquidity had a statistically significant effect on efficiency while earning rating had an insignificant effect on efficiency. Size of DTS was found to have a statistically significant moderating effect on the relationship between financial soundness and efficiency. The study concluded that: DTS are inefficient; increase in asset quality improves efficiency; holding more liquid assets decreases efficiency; the more stringent DTS regulations on capital adequacy the more efficient they are. The study contributes to: Finance Theory, methodology, and empirical literature. The study recommends that: DTS should adopt more robust ICT platforms which facilitates members’ access the core services; DTS should develop credit administration strategies that reduce the amount of non-performing loans; a merger policy for the DTS should be developed so as to encourage the smallest DTS to merge in order to increase their economies of scale hence resulting to improved efficiency. Limitations highlighted include: lack of enough empirical evidence in Kenya; lack of uniform classification of accounting items.

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