Moderating Effect of Exchange Rate on the Relationship Between Firm Characteristics and Financial Stability of Commercial Banks in Kenya
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Date
2020
Authors
Wamalwa, Nathan
Mungai, John
Makori, Daniel
Journal Title
Journal ISSN
Volume Title
Publisher
International Knowledge Sharing Platform
Abstract
The study sought to determine the moderating effect of exchange rate on the relationship between firm
characteristics and financial stability of commercial banks in Kenya. The study sought to establish the effect of
exchange rate on financial stability of commercial banks in Kenya. The study further sought to determine the effect
of firm characteristics as a composite index on financial stability of commercial banks in Kenya. Positivism
research philosophy was employed. Causal research design was utilized in this study. The study targeted 17
commercial banks from which secondary data was collected from the published financial reports for the study
period between 2011 and 2018. Generalized method of moments (GMM) model guided by dynamic Panel
regression analysis was utilized. Data analysis was run on the Stata 13 package and findings presented in tables
while deriving conclusions and recommendations from the study findings. The study found out that exchange rate
had a significant moderating effect on the relationship between firm characteristics and financial stability (β=
0.422519, p= 0.095) of commercial banks in Kenya. The study also found out that firm characteristics as a
composite index had a significant negative effect on financial stability (β= -1.006024, p= 0.063) of commercial
banks in Kenya. The coefficient of exchange rate at (β= 0.0177881, p=0.000) shows a statistically significant
positive effect on financial stability of commercial banks. To deal with issues of exchange rate fluctuations, the
study recommends that commercial banks in Kenya should adopt a unified exchange rate. The study further
recommends that commercial banks should focus on streamlining their internal firm characteristics in order to
ensure financial stability is achieved collectively since they are associated with variability in the exchange rate.
Description
A research article published in European Journal of Business and Management
Keywords
Moderating Effect, Exchange Rate, Firm Characteristics, Financial Stability
Citation
European Journal of Business and Management. Vol.12, No.25, 2020