PHD-Department of Accounting and Finance

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    Investment Incentives and Effective Corporate Tax Rate for Manufacturing Firms in Kenya
    (Kenyatta University, 2024-04) Nganyi, Muyela Silas
    Effective corporate tax rate is a financial policy subject of interest to firms, policy makers and researchers. The main problem is how to reduce it since it measures real level of tax burden at firm level. The Government of Kenya has implemented various investment incentives aimed at lowering effective corporate tax rate so as to influence investments, facilitate capital formation, increase productivity and grow manufacturing firms. However, effective corporate tax rate in Kenya is still a problem averaging 31.3 percent for the last 10 years and has not been declining towards zero as recommended by the World Bank. Such high effective corporate tax rate militates against desired competitive corporate environment for the manufacturing sector. The sector has deteriorated to 7.4 percent contribution to gross domestic product which is less than 15 percent as envisaged in Kenya Vision 2030. This undesirable phenomenon therefore prompted the design of this study. The general objective of the study was to determine the effect of investment incentives on effective corporate tax rate for manufacturing firms in Kenya. The specific objectives were to determine the effect of profit based incentive on effective corporate tax rate; establish the effect of capital investment incentive on effective corporate tax rate; establish the effect of custom duty incentive on effective corporate tax rate; determine the intervening effect of corporate performance on the relationship between investment incentives and effective corporate tax rate; and evaluate the moderating effect of inflation on the relationship between investment incentives and effective corporate tax rate for manufacturing firms in Kenya. The theories underpinning this study were optimal corporate taxation, political power, neoclassical investment and inflation tax. The study adopted positivist philosophy and longitudinal research design. The target population was 1,092 firms registered with Kenya Association of Manufacturers. Stratified random sample of 278 firms provided secondary data for the period 2010 to 2020. Descriptive statistics were used to show attributes, quantify and describe the basic characteristics of the study variables. Inferential statistics concentrated on diagnostic tests, panel regression and test of hypothesis. The diagnostic tests focused multicollinearity, normality, homoscedasticity, linearity, stationarity, autocorrelation and model specification. The direct, intervening and moderating effect models were analysed to establish the parametric significance of the variables at level of 5 percent. Forms for data presentation were textual, tabular, graphical and charts. This study adhered to ethical standards at all stages. The findings have established that investment incentives had negative statistically significant effect on effective corporate tax rate for manufacturing firms in Kenya. The results showed that corporate performance had intervening effect while inflation had moderating effect on the relationship between investment incentives and effective corporate tax rate. The study has made some recommendations which are corporate executives should make effective corporate tax rate as part of outcome variable in the financial modelling and should develop corporate tax strategy. In addition, the National Treasury should develop a consolidated Fiscal Incentives Policy and Act; reform and implement investment incentives framework; design an appropriate profit based incentive programme as part of fiscal policy instrument; design fiscal policy that has capital investment incentive so as to provide tax advantage to manufacturing firms; design and implement robust strategic custom duty incentive policy tailored for manufacturing sector; develop a differentiated corporate tax framework; and develop and implement corporate tax-inflation adjustment framework to be part of tax system in Kenya. The study has added to finance knowledge that fiscal policy affects corporate operations. However, there is need for further investigation on other possible investment incentives that were not covered in this study.
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    Firm Characteristics, Inflation, Revenue Efficiency and Financial Stability of Insurance Firms in Kenya
    (Kenyatta University, 2024-02) Ritho, Bonface Mugo
    The insurance industry plays a crucial role in fostering the ongoing growth and prosperity of the economy. The insurance sector is accountable for ensuring the ongoing survival of businesses, mitigating the risk associated with financial losses, and striving to eliminate uncertainty for investors. Although the insurance sector serves a vital role, companies within this industry have been facing challenges in preserving their financial soundness. The insurance industry has experienced significant fluctuations in profitability, leading to the placement of several companies under receivership or even their closure. The primary objective of this research study was to evaluate the effect of firm characteristics on the financial performance of Kenyan insurance firms. Additionally, the study assessed inflation as a moderating factor in these relationships, and how the efficiency in generating revenue mediates the link between corporate characteristics and financial stability. This study was supported by a number of theoretical models, such as the Theory of Distress by Wreckers, Capital Buffer Theory, the Pecking Order Hypothesis, Gibrat's Law, Trade-off Hypothesis, Economic Efficiency Theory, Price Theory, and the Resource-Based View Theory. The study employed an explanatory research design and adopted a positivist philosophical approach. The study focused on a specific group of insurance firms, namely the 46 companies that possessed IRA licenses and were actively functioning between 2014 and 2021. The research thesis employed the census approach to examine all 46 insurance firms in Kenya. The research thesis was based on secondary data. Before conducting the inferential analysis, many tests were performed, such as multicollinearity, normality, autocorrelation, homoscedasticity, stationarity, and model definition. The research outcomes were represented using tables, figures, and graphs. The study complied with research ethical norms. The study findings revealed that the use of leverage has a considerable and adverse effect on the financial viability of insurance companies in Kenya. In contrast, the size of the firm had a notable and favourable impact on the financial stability of these companies. The study found that the loss ratio had a strong negative effect on the financial stability of insurance companies in Kenya, while capital adequacy had a notable beneficial impact on their financial stability. The study findings showed that the relationship between firm characteristics and the financial stability of Kenyan insurance companies is not significantly impacted by inflation. Moreover, it is impossible to dispute the idea that revenue efficiency plays no discernible role as a mediator in the connection between these companies' financial stability and their organizational characteristics. Consequently, the study recommends that general insurers in Kenya should reduce their reliance on borrowed funds, raise the scale of their operations, effectively control their loss ratio, and bolster their capital sufficiency in order to improve their financial stability. Nevertheless, it is crucial for them to practice prudence while utilizing leverage, since an excessive dependence on it may endanger their long-term viability. Kenya should also be advised to conform to the standards of the Solvency II framework.
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    Firm Characteristics and Liquidity of Microfinance Banks in Kenya
    (Kenyatta University, 2023) Kiio, Joseph Munyao; Lucy Wamugo; Job Omagwa
    The dynamism of the microfinance sector has benefited microfinance banks, resulting in significant transformation in the number of users served as well as the diversity of products and services offered. However, numerous microfinance banks have ended up with a liquidity ratio that is much lower than the required limit. Consequently, MFB deposits are dwindling, loan books are reducing, and profits are declining, all of which have an impact on MFBs' intermediation role. Thus, the main objective of this research was to examine how the characteristics of microfinance banks in Kenya influence their liquidity. In particular, the study aimed to investigate the impact of microfinance bank size, management effectiveness, capital adequacy and asset quality on the liquidity of these institutions. Additionally, the study aimed to determine whether bank competitiveness moderates the relationship between firm characteristics and liquidity in microfinance banks in Kenya. The Efficient Structure Theory, Capital Buffer Theory, Market Power Theory and Preference theory of Liquidity informed the study. The study adopted a positivism philosophy and Causal research design. The study's target population was the 13 Microfinance Banks in Kenya that were active between 2012 and 2018. This research used a census method, focusing on all 13 MFBs in Kenya. Secondary data from Central Bank supervisory reports and published financial statements were used in the study. Using Stata software version 14, data was analyzed using descriptive analysis and panel regression analysis. The hypotheses were tested at the 0.05 level of significance. The study findings indicate that microfinance bank size had a negative and significant effect on liquidity. Microfinance management efficiency had positive and insignificant effect on liquidity. Capital adequacy was found to have a negative and significant effect on liquidity while Asset quality had a positive and significant effect on liquidity of microfinance banks in Kenya. The finding further indicated that Bank Competitiveness had a significant moderating effect on microfinance bank size and liquidity. Bank competitiveness did not have a significant moderating effect on management efficiency, asset quality, capital adequacy and liquidity of microfinance banks in Kenya. The study found that some of the firm characteristics have a significant effect while others had insignificant effect. Consequently, the study recommends that microfinance bank managers can effectively manage liquidity by collectively focusing on bank size and take note of all changes that may influence the liquidity levels of the banks. This will let managers of microfinance banks fully anticipate changes or fluctuations in total assets, which may have an impact on these banks' liquidity and carefully monitoring changes in their assets, microfinance bank managers can anticipate potential liquidity issues and take proactive steps to mitigate them, such as selling off assets. Expanding investment opportunities can also help to protect microfinance banks from fluctuations in liquidity by diversifying their asset base. Policy makers and regulators should implement policies to ensure that microfinance banks maintain adequate levels of capital to support their operations. Microfinance bank managers must carefully balance the demand for loans with the need to maintain highquality loan portfolios that do not result in excessive losses. Overall, effective monitoring mechanisms and appropriate interest rate policies are essential for protecting the interests of clients and ensuring the stability and sustainability of the microfinance-banking sector in Kenya.
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    Financing Practices and Access to Financial Services among Small and Medium Enterprises in Kenya
    (Kenyatta University, 2022) Kiring’a, Simiyu Edward; Fredrick W.S.Ndede; Argan O. Wekesa
    Policy makers and scholars acknowledge the significance of small and medium enterprises in stirring the economic growth and development in developing and developed economies. In spite of the generally fast pace by which access to financial services for small and medium enterprises is being established, significant segments of the small and medium enterprises sector do not yet benefit from the expansion. Access to financial services by small and medium enterprises from financial institutions has been decling, falling from 27% in the year 2013 to 23.4 % in the year 2015 then dropped to 17% in year 2016 and then by 2017 the success rate was only 34%. Empirical studies has failed to yield consensus on the effect of financing practices variables; relationship lending, asset based lending and financial statement lending on access to financial services. This study was therefore undertaken to investigate the effect of financing practices on access to financial services by small and medium enterprises in Kenya. The objectives of the study were; to establish the effect of relationship lending, asset based lending and financial statement lending on access to financial services by small and medium enterprises in Kenya. The study further sought to establish the mediating effect of financial literacy and moderating effect of credit information sharing on the relationship between financing practices and access to financial services. The study was based on credit rationing theory, information asymmetry theory, pecking order theory as well as financial intermediation theory. The philosophical foundation of the study was positivist. The study utilised explanatory research design. The target population comprised 4,253 small and medium enterprises in Kenya. A sample size of 366 SMEs was utilised by the study. The study adopted multistage sampling technique to obtain the SMEs respondents. Primary data was employed and acquired through semi structured questionnaires. Pilot testing was done on 37 small and medium enterprises owners. Validity of the research instruments was ensured through face and content validity. Cronbach’s Alpha with a coefficient of above 0.7 was engaged to test reliability which was considered acceptable. Diagnostic tests like Shapiro-Wilk test was used for normality test. Variance inflation factor was used to test multicollinearity and Levene test as a test for heteroscedasticity. Data was analysed using descriptive and inferential statistics. Stata software version 17 and Heckman two step selection model were applied in analysis of data. Hypotheses were tested at 95% confidence interval for acceptance or rejection. The study findings showed that relationship lending and financial statement lending had a positive and significant effect on access to financial services among small and medium enterprises in Kenya. Asset-based lending was found to have a negative and insignificant effect on access to financial services among small and medium enterprises in Kenya. The study established that financial literacy had a significant mediating effect on the relationship between financing practices and access to financial services by small and medium enterprises in Kenya. The results established that credit information sharing had insignificant moderating effect on the relationship between financing practices and access to financial services among the small and medium enterprises in Kenya. The study concluded that financing practices play a critical role in access to financial services by small and medium enterprises in Kenya. The study recommends that small and medium enterprises owners should strive to meet the terms and conditions provided by lending institutions in their various financing practices while management of lending institution should adopt financing practices favourable to small and medium enterprises to increase their access to financial services.
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    Investment Decisions and Financial Performance of Nonfinancial Firms Listed at the Nairobi Securities Exchange,Kenya
    (Kenyatta University, 2022) Maranga, Dennis Osoro; Ambrose Jagongo; Jeremiah Koori
    The expectations of any stakeholder in a firm at the end of a quarter or a financial year is to earn dividends. However, this may not always be the case, since the firm may occasionally post losses. Previous endeavors to boost the financial performance of non-financial firms has been retarded by unsound Investment decisions reached upon by their management. However, other Studies that have been conducted previously portray that practicing prudent Investment decisions has reported an increase in their Financial Performance. Therefore, this research study evaluated the effect of Investment decisions on the Financial Performance of these firms. The specific objectives of this research study were: to evaluate the effect of Expansion decisions, Replacement decisions and Renewal decisions on Financial Performance of listed non-financial firms at the NSE; to establish the effect of firm size and financial leverage as a moderating and a mediating variables respectively on the relationship between Investment decisions and Financial Performance of these firms. The main theory underpinning this research study was the agency theory, supported by the Q theory of investments, accelerator theory of investments, financial constraint theory and the arbitrage pricing theory. This research study involved a census of 30 listed non-financial firms at the NSE as at December, 2018. This research adapted an explanatory non-experimental research design with the main source of data for the study being secondary panel data. A positivism research philosophy and explanatory research design was used and the data was extracted from the Nairobi Securities Exchange and Capital markets authority annual reports by use of document guide review, covering a 6-year period spanning the years 2013 to 2018. This research study analyzed data using descriptive statistics and regression analysis. Diagnostic tests conducted indicated the absence of multicollinearity. The variables were also found not to have a unit root with a normal distribution. The data indicated presence of homoscedasticity and autocorrelation. Model Specification Test was conducted to determine the suitability of either fixed or random effect model. Random effect model was found to be the suitable model for the study. The presence of autocorrelation necessitated the need to run a Feasible Generalized least square regression. It was concluded from the regression results that Expansion decisions had a negative and non-significant effect on return on assets ratio, market share price to book share price ratio and fixed assets turnover ratio. Replacement decisions had a negative and non-significant effect on the return on assets ratio and fixed assets turnover ratio models respectively; However, Replacement decisions had a negative and significant effect on the market share price to book share price ratio; Renewal decisions had a negative and significant effect on the return on assets model. However, Renewal decisions had a negative and non-significant effect on the market share price to book share price ratio and fixed assets turnover ratio, respectively of these firms. Firm size and Financial Leverage did not moderate and mediate respectively the relationship between Investment decisions and the nonfinancial firms’ financial performance. It is therefore recommended that, by evaluating the Expansion Decision of firms, the lenders can carry out a precautionary move against the possibilities of lending to firms whose return on new fixed assets forecast is not promising. By assessing the behavior of the market share price to book share price ratio and the fixed to asset turnover ratio, the investors can be able to make timely Replacement and Renewal decisions. Various researchers are called upon to research on Investment decisions and Financial Performance of non-listed non-financial firms, small and medium firms and financial firms.
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    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.
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    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.
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    Fund Characteristics and Performance of Unit Trusts in Kenya
    (Kenyatta University, 2021) Namu, Nthimba Anderson; Jagongo Ambrose; Lucy Wamugo Mwangi
    When investors take part in any investment, increasing their wealth is the main objective. The objective is achieved when there is increase in share prices. The performance of unit trusts in Kenya however, has been poor compared to the counterparts in the rest of the world. The poor performance is a discouragement to individual and corporate investors in addition to affecting the realisation of financial stability according to the Kenya vision 2030. Empirical literature from developed and emerging markets posits that fund characteristics explain the unit trust funds performance. There is limited empirical literature in Kenya explaining the effects of fund characteristics on the performance of unit trust funds. The study therefore investigated the effects of fund characteristics on the performance of unit trust funds in Kenya. The specific objectives of the study were to: determine the effect of operating expenses on performance of unit trust funds in Kenya; the effect of fund size on performance of unit trust funds in Kenya: the effect of systematic risk on performance of unit trust funds in Kenya and the effect of unsystematic risk on performance of unit trust funds in Kenya. The study also sought to establish the moderating effect of inflation on the relationship between operating expenses, fund size, systematic risk, unsystematic risk and performance of unit trust funds in Kenya. The underpinning theories of the study were modern portfolio theory, arbitrage pricing theory, capital asset pricing model and Fama and French model. Positivism philosophy and explanatory research design and were adopted in the study. The population comprised 16 unit trusts with 99 equity funds, 107 money market funds, 85 bond funds and 100 balanced funds in Kenya as at the end of the year 2017. The study used a census approach. Secondary data was collected from the audited financial statement of respective unit trusts for the period 2005 to 2017 using a data collection schedule. Descriptive analysis done included the mean and standard deviation. Inferential statistics which included panel regression was also performed aided by e-views version 9. Diagnostic tests conducted included normality, heteroskedasticity, multicollinearity, stationarity and model specification. The study upheld issues relating to the ethical conduct of research by seeking permission from relevant authorities before collecting data. The study found that, operating expenses have a significant negative effect on performance in equity fund and money market fund and a significant positive effect on performance in bond fund and balanced fund. On fund size, the study found a significant positive effect on performance in all funds. Further, the study found systematic risk to have insignificant effect on performance in bond fund and balanced fund and significant effect on performance in equity fund and money market fund. In the unsystematic risk, the study found a significant effect on performance in the equity fund and money market fund. Besides, the study also found inflation rate to have a significant moderating effect on the relationship between fund characteristics and performance of unit trust funds in Kenya. The study concluded that: increase in operating expenses decreases performance; increase in fund size increases performance; increase in systematic risk increases performance and decrease in unsystematic risk increases performance. The study contributes to methodology, finance theory and empirical literature. The recommendations of the study the regulator should come up with a threshold for operating expenses within which unit trusts can charge based on various funds. There should also be policies regulating the amount of investment to be made for each fund in order to capitalise on the returns. The limitations underlined included: inadequate empirical evidence in Kenya; nonexistence of a unified ordering of accounting items.
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    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
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    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.
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    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.
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    Macro Risk Factors, Investor Sentiments and Performance of Equity Market at Nairobi Securities Exchange, Kenya
    (Kenyatta University, 2021) Makau, Musembi Michael; Eddie Simiyu; Charity Njoka
    The equity market is envisioned as a significant source of financing for both the corporate sector and government aimed at growing Kenya’s gross domestic product by 10 percent annually as per Kenya’s vision 2030. However, despite ongoing capital market reforms on corporate governance and conduct of business; Kenya’s equity market remains constrained by absence of new listings. In addition, the equity market suffers from high concentration risks whereby top five companies control 70 percent of total market capitalization. This exposes the market to financial contagion effects. Furthermore, the performance of equity market has declined significantly during the period under study with investors loosing an average of KSH.20 billion in 2009, KSH.299 billion in 2011, KSH.262 billion in 2015 and KSH.461 billion in 2018 in market capitalization decline caused by fluctuations in macro risk factors leading to investor wealth decline, loss of investor confidence, low equity market activity and limited investment opportunities. On average, the exchange’s contribution to economic growth was lower than one percent against a ten percent target by government’s vision 2030. The key aim of the study was to establish the effect of macro risk factors and Investor sentiments on performance of equity market at Nairobi Securities Exchange, Kenya. Specifically, the study determined the effect of foreign equity flows; the effect of domestic savings; the effect of private sector credit; the effect of Inflation rate and the effect of Investor sentiments on performance of equity market in Nairobi Securities Exchange, Kenya and examined moderating effect of institutional ownership on macro risk factors and Investor sentiments on Performance of equity market. The study was based on the capital asset pricing model, fisher’s hypothesis, arbitrage-pricing theory, behavioral finance theories (prospect theory and herding theory) and efficient market hypothesis. The study relied on positivism paradigm and explanatory research design. The study relied on monthly secondary data obtained from Central bank of Kenya, Nairobi Securities Exchange, Capital Markets Authority of Kenya and Kenya National Bureau of Statistics between 2008 and 2018. The target population was all 67 listed firms in Nairobi securities exchange as captured by the Nairobi Securities Exchange All Share Index. The instruments of data collection were document review guides. The study used Auto regressive distributed lag model and Nonlinear Auto regressive distributed lag model for data analysis. The findings of the study indicate negative significant relationship between foreign equity flows (β=0.034, p=0.05), domestic savings (β=0.003, p=0.05), Inflation rate (β=0.007, p=0.05) and performance of equity market. Furthermore, the study also reported significant positive relationship between private sector credit (β=0.000, p=0.05), and Investor sentiments (β=0.000, p=0.05) and performance of equity market. In addition, institutional ownership (β=0.000, p=0.05) significantly moderated the relationship between macro risk factors, Investor sentiments and performance of equity market. The findings underscored the importance of the central bank in monitoring Inflation rate and implementing appropriate monetary policies aimed at reducing the high cost of inputs to create a favorable environment for firms to thrive and make profits to increase equity market performance. Since private sector credit positively affects equity market performance, the central bank should reduce the central bank rate so that commercial banks can lend more to private sector. The capital markets authority to work towards reduced taxes and transactions charges to attract foreign equity flows while monitoring changes in Investor sentiments in the market as it significantly affects performance of equity market. The significant institutional ownership-moderating role was emphasized as corporate governance increases investor confidence in the market and ensures firm managers invest in projects that maximize shareholder value.
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    Housing Market Fundamentals and Housing Prices in Nairobi City County, Kenya
    (Kenyatta University, 2021) Nyachiro, Daniel Omanga; Job Ombongi Omagwa; Lucy Wamugo Mwangi,
    In Kenya, housing prices persistently rose from the year 2005 to 2018. An increase in housing prices is beneficial to an economy, but a persistent increase raises concerns over housing affordability and the potential risk of an unstable housing market. Empirical evidence indicates that variations in housing prices have been associated with market fundamentals. However, the extant literature documents contradictory findings on the nature of relationships: this formed a good basis for this study. The general objective was to assess the effect of housing market fundamentals on housing prices in Nairobi City County, Kenya. The specific objectives were to determine the effect of per capita income, interest rates, construction cost, inflation, and credit supply on housing prices in Kenya; the mediating effect of housing supply, and the moderating effect of investor sentiments on the relationship between housing market fundamentals and housing prices respectively. The study was anchored on the efficient market theory, rational expectations theory, permanent income hypothesis, real estate market equilibrium theory, and stock-flow model. The study adopted the positivist philosophy and an explanatory research design. The target population was 163,000 residential buildings units put up for sale in Nairobi City County, Kenya, over the period 2005-2018. The study was a census that used secondary data sourced from five distinct sources. The study employed linear and nonlinear autoregressive distributed lag (ARDL) models. Additionally, the study evaluated the moderating and mediating role of investor sentiment and housing supply on the relationship between market fundamentals and housing prices. The linear ARDL outcome indicated that per capita income, interest rate, inflation, and construction cost significantly affect housing prices in the short run. The nonlinear ARDL model outcome indicated that interest rate, inflation, and credit supply have a significant asymmetric impact on house prices in the short and the long run. Equally, the outcome indicated that per capita income and construction cost had a significant asymmetric impact on housing prices only in the long run. Further, the study found that investors' sentiment significantly moderates the relationship between housing market fundamentals and housing prices in the long run. Finally, the study found that housing supply partially mediates the relationship between housing market fundamentals and housing prices in both horizons. The study concluded that housing prices have a strong downward price stickiness due to changes in the interest rate; have a relatively rigid reaction to inflationary pressure; credit supply and housing supply are key factors in the determination of dynamics of housing prices; and that investor sentiments have a persistent role in pushing prices away from equilibrium prices. This outcome implies that stable macro-economic and macro-prudential policies and reduction of building costs and supply restrictions would stabilise housing prices in Kenya. The findings also imply that investor sentiments can lead to mispricing relative to rational expectations. The study recommends that Central Bank of Kenya in collaboration with financial institutions to come up with innovative housing finance products that take into account incremental housing and mixed planning to cater for the lower and middle income households; the Central Bank of Kenya should also fast track creation of a mortgage liquidity facility to enhance long term financing to lenders; the Government of Kenya should consider harmonisation of the fee structures and procedures of planning, approvals and titling across the national and county governments to shorten the process of property registration; The Kenyan State Department of Housing and Urban Planning should enhance review of policies around planning and infrastructure provision to reduce supply restrictions and encourage incremental housing; and finally the Capital Markets Authority and Institute of Surveyors of Kenya should develop a nationwide real estate sentiment index to mitigate systematic risk associated with speculative housing development.
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    Financing Preference Determinants and Their Influence on Financial Performance of Micro and Small Enterprises in Nairobi City County, Kenya
    (Kenyatta University, 2021) Ngureh, John Mwangi; Eddie Simiyu Mungami; Mungai John Njangiru
    MSEs significantly subscribe to economic development around the world, in Africa and also in Kenya. MSEs play an extraordinary role in creation of jobs, income generation and is a seedbed for medium and large enterprises. MSEs face many obstacles restricting their survival and financial performance as measured by growth in sales and return on assets; including lack of skilled manpower, lack of markets and competition. In Kenya, MSEs failure rate is 67%. In Nairobi City County MSEs financial economic performance determined by growth in sales reduced from 95.7% in 2011 to 87.2% in 2017. This study aimed to investigate the effect of financing preference determinants on the financial performance of MSEs in Stare he, Nairobi City County, Kenya. The study specifically aimed to establish the effect of financing costs, ownership characteristics and the firms’ characteristics on financial performance of MSEs in Stare he, Nairobi City County, Kenya. The study also established the moderating effect of regulatory framework and the effect of mediation of risk taking on the association of financing preference determinants and financial performance of MSEs in Stare he, Nairobi City County Kenya. The study was anchored on financial constraint theory, Pecking-Order theory, Resource-based theory and Trade-off theory which gave support and direction to this study. The study adopted descriptive survey design and positivism research philosophy. Stratified random sampling was used to select 384 MSEs determined from a target population of 21,869 Licensed by Nairobi City County. The study used Primary data (cross sectional) collected by administering a questionnaire with a rating scale of 1-5 of closed end-ended questions. To ascertain the validity of measurement model CFA was used before commencing SEM to test the postulates under study through Amos software. Descriptive statistics and inferential statistics were used to analyze data. Diagnostic tests included; Berletts test of sperecity Multi-collinearity test, Keizer-meyer-olkin test and Normality test. Data results were presented inform of graphs, tables, percentages and charts. The study found a positive significant relationship between financing costs and financial performance of Micro and Small Enterprises. The study also found positive significant relationship between ownership characteristics and financial performance of MSEs in Stare he. Further, the study found a negative relationship between ownership characteristics on financial performance. The finding demonstrated that regulatory framework had no moderation effect between FPDs and financial performance of MSEs in Stare he. Risk taking was found to partially mediate the relationship between FPD and financial performance of MSEs. The study recommended that; firstly, the government through its financial agencies should work out a framework to reduce costs to MSEs. Secondly, the government should reduce the bureaucracy involved in business start-ups. Thirdly, the government should enhance entrepreneurship skills to MSE owners and managers. Lastly, business education provided to MSE owners and managers should include inculcation of risk taking concept.
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    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.
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    Fundamental Risk Factors and Profitability of Commercial Banks in Nigeria
    (Kenyatta University, 2020) Akims, Malgit Amos
    Commercial banks undertake significant roles in the economic resource allocation of countries. The financial intermediation roles performed by banks are however largely dependent on profitability. The fluctuating profitability trend of commercial banks in Nigeria is bringing about high concerns among various stakeholders. The study sought to assess the effect fundamental risk factors on profitability of commercial banks in Nigeria. The specific objectives were to establish the effect of price level fluctuation, exchange rate fluctuation and interest rate fluctuation on profitability of commercial banks in Nigeria. The study further sought to assess the moderating effect of bank competitiveness on the relationship between fundamental risk factors and profitability of commercial banks in Nigeria. The study was anchored on Agency Theory, Deflation Theory, Expectations Theory of Exchange Rates, Liquidity Theory of Interest Rates, Market Power theory, Agency Theory and Financial Intermediation Theory. The study adopted positivism research philosophy and causal research design. The target population of the study comprised of the twenty one commercial banks in Nigeria with the sample comprising of the seventeen commercial banks which were fully operational within the study period. The study therefore was based on purposive sampling design. The study applied annual panel data for the period 2010 to 2017 which was sourced from the published audited financial statements of commercial banks and the Nigeria National Bureau of Statistics. Data was analyzed based on descriptive, correlation and panel regression analyses. Hypotheses of the study were tested at 0.05 significance level. Correlation analysis indicates that fundamental risk factors and bank competitiveness had significant correlation with profitability of commercial banks in Nigeria. Based on the panel regression analysis, the study found that price level fluctuation had a significant effect on profitability of commercial banks in Nigeria based on return on assets (β=0.003, p=0.0170) and net interest margin (β=0.0028, p=0.0380) and no significant effect based on return on equity (β=0.0027, p=0.0660). The study findings indicate that exchange rate fluctuation had a significant effect on return on assets (β=-0.0002, p=0.0440) and insignificant effect on return on equity (β=-0.0002, p=0.0560) and net interest margin (β=-0.0002, p=0.0510). Interest rate fluctuation had a significant effect on return on assets (β=0.0136, p=0.0090), return on equity (β=0.0139, p=0.0110) and net interest margin (β=0.0155, p=0.0010) of commercial banks in Nigeria. Bank competitiveness had a significant moderating effect on the relationship between price level fluctuation and return on assets (β=0.0414, p=0.0400), return on equity (β=0.0484, p=0.0130) and net interest margin (β=0.0415, p=0.0390). Bank competitiveness had no significant moderating effect on the relationship between exchange rate fluctuation and profitability. Bank competitiveness had no significant moderating effect on the relationship between interest rate fluctuation and profitability of commercial banks in Nigeria. The study recommends that managers of commercial banks should fully anticipate price level fluctuation in the country and that of other countries which they also operate in. In periods of severe exchange rate fluctuation, bank management should hedge against this by increasing their divestment options and switching trading options to less volatile currencies. Bank managers can take advantage of periods of high loan demand and moderately charge higher loan rates accordingly. Price discrimination can also be employed by the managers of commercial banks by attaching different interest rates on loans for different customers which can be guided by their credit history.
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    Foreign Financial Inflows and Stock Market Development at the Nairobi Securities Exchange, Kenya
    (Kenyatta University, 2020-06) Oirere, Cliff Osoro
    Despite the stock markets’ pivotal role towards economic growth, stock market development in Kenya and its contribution to economic growth is still an issue of great concern to policy makers and scholars. The Kenyan stock market is characterized by a small number of listing, lack of sophisticated infrastructure, narrow range of tradable instruments and very low liquidity. Moreover, the market is highly volatile as evidenced by high volatility in key market indicators during the period under study. Foreign investors play a significant role towards stock market development by enhancing the value of stocks and their liquidity. Hence, the study sought to establish the effect of foreign financial inflows on stock market development at the Nairobi Securities Exchange, Kenya. The Specific objectives of the study were to assess the effects of Foreign Direct Investment, Foreign Equity Portfolio, Foreign Debt Portfolio and Diaspora Remittances on stock market development at the Nairobi Securities Exchange, Kenya. The study further assessed the mediating effect of foreign investor participation on the relationship between foreign financial inflows and stock market development as well as the moderating effect of political risk on the relationship between foreign financial inflows and stock market development. The study was anchored on the Base Broadening theory, Foreign Direct Investment Dependence theory, Neoclassical Theory of Investment, Trade Off theory and the Pure Self Interest theory. The study adopted a positivism philosophy as well as causal research design methodology. The study adopted a census approach and time series data for the period 2008-2018 was obtained from Capital Markets Authority quarterly statistical bulletins, Central Bank of Kenya monthly reports, Nairobi Securities Exchange annual reports and the United Nations Conference on Trade and Development website, using a secondary data collection schedule. To ensure non-violation of the assumptions of classical linear regression, the following diagnostic tests were conducted; Normality, Heteroskedasticity, Autocorrelation, Stationarity and Multicollenearity and Model Stability test. The data was then analysed using correlation analysis, Modified Least Square Regression analysis and the Autoregressive Distributed Lag Model. The Modified Least Squares regression analysis was used in testing the direct effects of foreign financial inflows on stock market development while the autoregressive distributed lag model was used to test for existence of long run and short run cointergration with the aid of E- views 9.5 and SPSS 23 statistical software. The direct effect test indicates that diaspora remittances and foreign debt portfolio had positive and significant effect on stock market development whereas foreign direct investment had a negative and significant effect on stock market development. Foreign equity portfolio inflows however had negative but insignificant effect on stock market development at the Nairobi Securities Exchange, Kenya. The mediating effect of foreign investor participation on the relationship between foreign financial inflows and stock market development was not statistically significant. However, foreign investor participation was positive and significant as a predictor of stock market development. Political risk was not significant both as a predictor of stock market development and as a moderator in the relationship between foreign financial inflows and stock market development at the Nairobi Securities Exchange. The autoregressive distributed lag test results support the existence a significant short run positive effects of all foreign financial inflows on stock market development as evidenced by the negative and significant coefficient of the Error Correction Term (ECT). However, in the long run only diaspora remittances and foreign debt portfolio had a significant positive effect on stock market development while foreign direct investment had a significant negative effect on stock market development. The effect of foreign equity portfolio on stock market development was equally negative but insignificant in the long run. In view of the foregoing findings, the study recommends that the Kenyan government needs to devise measures that would boost foreign investor confidence and thus attract increased diaspora remittances and foreign debt portfolio investment. Additionally, the Capital Markets Authority needs to implement policy measures that will attract active participation of the local investors to invest at the Nairobi Securities Exchange. This will give the bourse more stability, liquidity and subsequently lead to increased value of stocks listed at the market.
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    Venture Capital Financing and Growth of Small and Medium Enterprises in Nairobi City County, Kenya
    (Kenyatta University, 2020-09) Apuoyo, Benson Odhiambo
    The usage of venture capital is fundamental for the growth of Small and Medium Enterprises (SMEs) for economic and political development of a nation. SMEs in emerging economies do experience growth constraints compared to those in developed countries, in terms of institutional longevity, asset base, employment and revenue generation. Growth of registered SMEs in Kenya declined from 204 SMEs in the year 1999 to 47 in the year 2015 representing 77% drop in SMEs. Subsequently, over 50% of SMEs closed their businesses at the age of 4 years in Nairobi, yet Nairobi City County contributes over 50% of the national GDP. Main reasons for stagnation and closures are poor usage, cost and lack of finance. Realizing the difficulties of accessing credit from financial institutions, SMEs in Kenya seek alternatives sources of financing such as borrowings from relatives and friends which are unreliable and unsustainable. In retrospect, venture capital financing provides an alternative credit, a fundamental financial leverage which comes along with a simple and structured financing methods, cost and management support towards the SMEs. It has remained unclear, however, whether the usage of these critical financial leverages in venture capital financing do contribute to the growth of small and medium enterprises in developing countries as desired. Therefore, the general objective of the study was to investigate the effect of venture capital financing on the growth of small and medium enterprises in Nairobi City County, Kenya. The County has a higher concentration of both venture capital firms and small and medium enterprises. This study adopted positivist research philosophy. Descriptive research design was used to study the target population of 97 small and medium enterprises which had received venture capital financing over the last five-year period from 2013 to 2017. Using a stratified simple random sampling design technique, a sample of 79 venture capital backed SMEs was selected and questionnaires administered to obtain both primary and secondary data. The response rate of 64.56% was adequate for analysis and drawing inferences. The study used multiple regression analysis. To address various research biases common in multiple regression analysis, diagnostic tests were undertaken namely: Test for normality, homoscedasticity, multicollinearity and autocorrelation. The study found out that 48.4% of variation in SMEs growth was due to venture capital financing. The unexpected finding was that cost of venture capital financing is positively related to the growth of venture capital. The study found that the more the cost of venture capital was used the higher the growth realized by SMEs. This was because cost of venture capital was found to be responsible for the development of technical and management skills critical for the internal operation of the business, development of customer focused strategies and this immensely contributed to growth of the SMEs. The study further found that financing method has a positive effect on the relationship between venture capital financing and SMEs growth. It was also found that management support has a positive effect on growth of SMEs. Financial performance was found to be a significant partial mediator while regulatory framework was not found to be a moderator in the relationship between venture capital financing and SMEs growth. Given that cost of venture capital positively influences SMEs growth, the study recommends that a cost containment-revenue growth trade off strategy be embraced by both venture capitalists and SMEs and due consideration given to cost during the budgeting process. Venture capital-backed SMEs should embrace management boards for professional advice as this is a fundamental management support. Further research should be undertaken to establish other factors that explain the 51.6% variation in SMEs growth.
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    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