An evaluation of the determinants of Capital Markets developement in Kenya. ( A case study of the Nairobi Stock Exchange)
The purpose of the study was to evaluate the determinants of the capital markets development in Kenya, a case study of the Nairobi Stock Exchange (NSE). The NSE is considered a more liquid and active market than those of its East African counterparts (Uganda and Tanzania) and in sub-Saharan Africa in general. However, by international standards, it is small, illiquid and volatile with regard to price and returns. Low liquidity is particularly evident in the secondary bonds and equity markets. The NSE is a highly concentrated market with most of its activity centered on a few listed companies (Wagacha, 2001). The specific objectives of the study included: (i) to determine how the changes in institutional factors affect the capital markets development in Kenya; (ii) to determine the impact of macroeconomic factors or stability on capital markets development in Kenya and (iii) to determine the effect of the regulatory changes and political risk on the capital markets development in Kenya. For the research the population of the study was composed of selected employees of the Nairobi Stock Exchange, key informants, from the listed companies and the member firms. A census was drawn from the total population of 104 respondents. Data was collected by use of questionnaire method which had both closed and open 'ended questions. Data was analyzed using descriptive statistics including frequency distribution tables, means, mode and standard deviation. From the study the researcher established the key determinants of the capital markets development in Kenya. The response from the respondents showed that institutional factors (78%), macroeconomic factors (75%), political risk and regulatory changes (63%), as the respondents stated the extent of the effect as being on the great and very great extent. From the study the following recommendations were made to aid in the development of the capital markets; public education on how the capital markets development operate, transparency of dealings and accountability, involvement of more companies, offering alternative products to the current narrow choice of stocks and bonds, prompt action on fraud cases, closely working among member firms, online reliable trading, research on new policies and demutualization of the NSE and subsidized favourable taxation on member firms.