Investment Decisions, Corporate Governance and Financial Performance of Defined Contribution Pension Schemes in Nairobi City County, Kenya
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Date
2024-10
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Kenyatta University
Abstract
Defined contribution Pension Schemes play a very significant role in the economy of a Country. Pension schemes are auxiliary and have complementary roles with other financial institutions, in stimulating capital and financial market growth thereby contributing to Gross Domestic Product of many nations. Pension schemes provide critical retirement income for millions of people. Poor retirement yields of funds and non-payments to retirees is impeding the accomplishment of the Millennium Development Goals per World Bank reports. This study sought to establish the effect of investment decisions and corporate governance on financial performance of defined contribution pension schemes in Nairobi City County, Kenya. In particular, the sought to find out the effect of inventory, replacement and expansion investment decisions and corporate governance, as a moderating variable on the financial performance of defined contribution pension schemes in Kenya. The study was guided by Modern portfolio theory, behavioral finance theory and agency theory. Literature was reviewed on all the variables. The study was carried out using a panel data of 5 years from 2017 to 2021 using a descriptive design. The target population for the study comprised 1182 defined contribution pensions’ schemes in Nairobi City County, Kenya as per the Retirement Benefits Authority. 92 registered defined contribution pension plans were included in the sample. Stratified random sampling method was applied to collect secondary data. Quantitative data was collected and analyzed using descriptive and inferential statistics. STATA software analyzed the data. The diagnostic tests carried out included normality, heteroscedasticity, autocorrelation and hausman. The study found that there was positive and significant relationship between inventory investment, replacement investment, expansion investment decisions and financial performance. Cash and demand deposit did not have significant effect but fixed deposit had significant effect on financial performance. Conclusions from the study was that the financial success or failure of Kenya’s defined contribution pension plans were significantly impacted by decisions made on inventory, replacement and expansion investments. Cash and demand deposits did not moderate the association amongst investment decision and defined contribution pension systems' financial success. The correlation between financial performance and investment decision was mitigated by fixed deposits. For policy, the study recommended that policymakers and regulators should concentrate on creating regulations that will allow defined contribution pension plans to participate optimally in investment decisions. In practice, investment should focus on fixed deposits and ignore cash and demand deposits because fixed deposit had moderating effect while cash and demand deposit did not have. Further, it is recommended that studies be conducted in other East Africa Nations because the investigation focused on Kenya
Description
A Thesis Submitted to School of Business, Economics and Tourism in Partial Fulfillment of the Requirements for the Award of the Degree of Master of Science (Finance) of Kenyatta University, November, 2024