Derivatives Hedging and Performance of Non-financial Firms Listed in the Nairobi Securities Exchange, Kenya
Loading...
Date
2020
Authors
Kivindu, Silvah Ndallah
Njoka, Charity W.
Mungai, John N.
Journal Title
Journal ISSN
Volume Title
Publisher
International Journal Corner
Abstract
Since 2010, Kenyan listed non-financial firms have made huge losses due to derivatives hedging. In 2015, Kenya Airways
reported a net loss of Kes. 25.7 billion, out of which Kes. 7.5 billion was attributed to derivatives usage. This saw the firm
value as measured by Tobin’s Q ratio drop from 0.08 in 2014 to 0.04 in 2015. Kenol Kobil reported a net loss of Kes. 6.28
billion for the 2012 financial year, a drop of 292 percent compared to a profit of Kshs. 3.2 billion in 2011, out of which
Kes. 4.6 billion was attributed to derivatives hedging. In 2012, the firm value was 0.63 as measured by Tobin’s Q ratio. In
2013, a Tobin’s Q ratio of 0.53 was witnessed, a drop from 0.63 in 2012 even after cancelling some derivative contracts.
Therefore, this study sought to find out the effect of derivatives hedging on the performance of non-financial firms listed
in the Nairobi Securities Exchange as measured by the Tobin Q’s ratio. The study targeted all the 34 Nairobi Securities
Exchange listed non-financial firms as of 31st December 2017, out of which 10 firms were sampled purposively and
studied for a period of six years. A descriptive survey research design and a positivism study philosophy were utilised in
the study. The study used both primary and secondary data. Primary data was collected through a questionnaire while
secondary data, which was used to evaluate the performance of the Nairobi Stock Exchange listed non-financial firms,
was obtained from the published financial statements of the firms. The collected data was analysed using estimators of
Stata 15. The study applied both descriptive and inferential statistics to analyse the quantitative data that was collected.
The study employed panel data (Fixed effects) based on the Hausman specification outcome, to determine the effect of
derivatives hedging on the performance of non-financial firms listed in the Nairobi securities exchange. A negative
relationship was found between the derivatives hedging and the performance of the non-financial firms. Currency
derivatives, commodity derivatives and interest rate derivative hedging were positively related to the performance of
non-financial firms listed in the Nairobi Securities exchange. Exchange rates were found not to have a moderating effect
on the relationship between derivatives hedging and the performance of the non-financial firms.
Description
A research article published in The International Journal of Business & Management
Keywords
Commodity derivatives, Currency derivatives, Interest rate derivatives, Exchange rates, Non-financial firms and firm value
Citation
The International Journal of Business & Management. Vol 8 Iss 7