Unsystematic Risk and Financial Performance of Investment Banks in Kenya
| dc.contributor.author | Kapkea, Caroline Jerop | |
| dc.date.accessioned | 2026-02-24T13:23:48Z | |
| dc.date.available | 2026-02-24T13:23:48Z | |
| dc.date.issued | 2025-09 | |
| dc.description | A Research Thesis Submitted to the School of Business, Economics and Tourism in Partial Fulfillment of the Requirements for the Award of the Degree of Master of Science (Finance Option) of Kenyatta University, September 2025. Supervisors 1. Eddie Simiyu 2. Joseph Muchai Muniu | |
| dc.description.abstract | Investment banks have experienced significant global and regional growth over the past two decades. In Africa, and specifically in Kenya, investment banks have gradually grown, with the Capital Markets Authority (CMA) licensing fifteen (15) investment banks in 2022, up from two (2) in 2002. Despite this growth, the sector in Kenya has faced erratic and generally declining financial performance, with many banks recording negative financial ratios that is Return on Assets and Return on Equity over the study period. From the literature review, it is evident that most risk-based studies have predominantly focused on commercial banks, SACCOs and the manufacturing sector, leaving investment banks particularly in Kenya largely understudied. Existing research on unsystematic risk has often employed alternative dependent variables, with limited emphasis on the combination of variables undertaken in this study. This study sought to investigate the causes of underperformance, focusing on the impact of unsystematic risks on financial performance (FP) among investment banks in Kenya. Key unsystematic risk variables examined include revenue diversification risk, liquidity risk, capital adequacy risk, operational risk and exchange rate risk. The study also examined the moderating role of competition and the controlling influence of firm size on the relationship between unsystematic risk and financial performance. The study was anchored on several theoretical frameworks: modern portfolio theory, liquidity preference theory, trade-off theory, risk management theory, interest rate parity theory, and profit maximization theory. A quantitative research design was used, analyzing financial reports from all 15 licensed investment banks through descriptive and inferential statistics, including correlation and regression analyses. The results revealed that revenue diversification risk, liquidity risk and capital adequacy risk have a positive and significant relationship with financial performance, suggesting that diversified income streams, adequate liquidity and strong capital buffers contribute to improved profitability. Conversely, operational risk and exchange rate risk showed a negative and significant relationship with financial performance, indicating that inefficiencies in operations and exposure to currency fluctuations adversely affect profitability. Additionally, competition was found to moderate the relationship between unsystematic risks and financial performance, while firm size significantly influenced the interaction between these risks and performance. The study underscores the importance of strategic risk management and scalability for sustained growth in the sector. It concludes that maintaining adequate liquidity and capital, diversifying revenue sources and managing exchange rate and operational risks are critical to enhancing financial performance. The findings also emphasize the role of competitive positioning and firm size in mitigating risk impacts. Recommendations include regular regulatory monitoring of capital and liquidity requirements and promotion of revenue diversification. Investment banks are urged to integrate these unsystematic risks into their Enterprise Risk Management (ERM) frameworks, strengthen internal controls and conduct competitor benchmarking. Investor sensitization on inherent risks and conducting due diligence are also advised to safeguard stakeholder interests and improve sector stability. | |
| dc.identifier.uri | https://ir-library.ku.ac.ke/handle/123456789/32572 | |
| dc.language.iso | en | |
| dc.publisher | Kenyatta University | |
| dc.title | Unsystematic Risk and Financial Performance of Investment Banks in Kenya | |
| dc.type | Thesis |