The Relationship between Lunar Cycle and Stock Returns in Companies Listed at Nairobi Securities Exchange

The belief that Lunar Cycle (LC) affects people’s mood and behavior stems from ancient lore. Various psychological studies and behavioral business literature provide proof about effect of mood on the benefit prices. Despite the effects of LC on people’s moods by international researchers, there has been no known study that focuses on the impact of LC on stock returns at Nairobi Securities Exchange (NSE). The purpose of this research is to examine the association between LC and stock return among companies listed at NSE. This study adopts descriptive research design and a sample of NSE 20-Share Index to meet the objective of the study. Secondary data collected from NSE reports between 2010 and 2014 is analyzed using event study model and numerical Package for the societal discipline evocative data and statistical association, and the significance of the findings tested using t-statistic at 95% significance level. This study finds that stock returns increases throughout New Moon (NM) and Full Moon (FM) phases compared to the normal trading days of the LC. Further analysis finds that cumulative stock returns are higher during the NM dates. The p–value of -2.72 and -2.404 recorded during NM and FM phases respectively deviates significantly from the t-significant rate of 1.943 under the degree of freedom of 6, subjected to testing at 95% significance level. The results show that there exists significant difference among mean value of stock returns during NM/FM phases compared to the mean return during normal trading days. This study recommends that capital markets authority (CMA) and NSE comes up with regulation which will edge lowest and highest price levels through FM and NM phases so that it can secure price against manipulations and to protect investors against manipulations. Keywords: Lunar Cycle, Stock Returns, Nairobi Security Exchange

The Mediating Effect of Technical Efficiency on the Relationship between Revenue Diversification and Financial Performance of Commercial Banks in Kenya

Banks generate revenue through the intermediation process and perceive revenue diversification as a possible solution to financial performance challenges. The banks’ income statements attest to this argument with banking activities moving gradually from interest-bearing activities to non-interest-bearing activities. The objectives of this paper were to assess the relationship between revenue diversification and return on assets and establish the mediation effect of technical efficiency on the relationship between revenue diversification and return on assets. The research used unbalanced panel data sourced from forty-two commercial banks spanning 2009 to 2018. The study measured revenue diversification using the Hirschman-Herfindahl index while technical efficiency level was measured using data envelopment analysis. The performance attribute, return on assets was measured as a ratio of earnings before interest and tax over the total assets. The paper assessed the relationships using the panel least square regression guided by the mediation assessment process proposed by Baron and Kenny. The cross-section randomeffects model results revealed a significant positive relationship between revenue diversification and return on assets. Further, results indicated the absence of technical efficiency mediation effect on the relationship between revenue diversification and return on assets. The study recommends policy and regulatory programs that allows banks to diversify in revenue-generating activities as well as initiatives that synchronize technical efficiency in the intermediation process to improve financial performance of commercial banks, especially in emerging economies

Financial Integration, Macroeconomic Volatility And Economic Growth In The East African Community

This study aimed at determining the moderating effect of macro-economic volatility on the relationship between financial integration and economic growth in the EAC. The study adopted a positivistic research philosophy and casual research design.. Generalized-two stage least squares instrumental variable regression model (G2SLSIV) was then conducted to test the hypothesis. The findings of the study showed that, macro-economic volatility does not have a significant moderating effect on the relationship between financial integration and economic growth. Therefore, the study recommends that, the governments of respective member states work on a monetary policy that aims to attain a single digit level of inflation rate (low inflation targeting), in the spirit of macro-economic convergence. The study culminates with acknowledging the limitations encountered and provides suggestions for further research

The Effect of Capital Structure on Financial Performance with Firm Size as a Moderating Variable of Non-Financial Firms Listed at the Nairobi Securities Exchange

This paper examines the effect of capital structure on the financial performance of the non-financial firms listed at the Nairobi Securities Exchange and how this relationship is moderated by firm size. In addition, the paper evaluates the existence of equilibrium and disequilibrium relationship among the variables. The study analyzed unbalanced panel data sourced from across 53 non-financial firms listed at the Nairobi Securities Exchange which covers the period from 2010 to 2017. Total debt to total equity, total equity to total assets, and total debt to total assets were used for assessing capital structure of the listed non-financial firms. Firm size was measured using natural logarithm of total sales. Financial performance attribute was measured by Tobin’s Q. Data was analyzed using descriptive statistics, multiple and simple regression analysis. Regression analysis was used to ascertain the direction and magnitude of the relationships. The study revealed that leverage had a significant positive effect on the financial performance of the NSE listed non-financial firms. Furthermore, firm size has a positive moderating effect on the relationship between capital structure and financial performance. The study concludes that firms should strive to increase their leverage since it has a statistically significant positive effect on financial performance of the nonfinancial firms listed on the NSE. The study further concludes that firms should strive to grow their firm size by increasing their total sales. This is because it has a statistically significant positive effect on the financial performance of NSE listed non-financial firms

The Relationship between Stock Market Performance and Economic Growth In the East African Community

Purpose – This paper investigated the relationship between the stock market performance and the economic growth in the East African Community. The stock market variables considered in the study were stock market capitalization, market liquidity and share price volatility. The GDP growth was a used a measure for economic growth. Methodology – The quantitative research methods were employed to define the nature of relationship between the variables. The population of the study was the All-Share index in the 4 stock markets in the member countries. To fulfill the purposes under the research, the stock market performance of the EAC member countries was collected from the Capital markets, EASRA and the respective Stock Exchanges. Data for GDP growth was collected from the World Bank website. The study employed the Vector Autoregressive (VAR) model as well as the Granger test for causality to estimate as well as provide evidence regarding the nature and direction of relationship of the variables. Findings - The study established an existence of long term relationship between the stock market performance variables (market capitalization and liquidity) and economic growth in the East African community. The study established that there was no relationship between the share price volatility of the stock market and economic growth. Implications - These results depict that an increase in stock market capitalization and liquidity in the East African Community contributes to the economic growth in the long term. Policies, measures and efforts geared towards improving the efficiency of the stock markets through lowering transactional costs and improving equity turnover should be put in place by the East Africa Community to enhance economic development and growth of the region. Value – The study established the need for the East Africa Community to focus on developing strong and effective stock markets as well as policies to foster investments and economic growth in the region. Through the establishment of the East African Securities Regulatory Authority (EASRA), policies that encourage financial integration and deepening as well as listings and cross listings ought to be established to spur economic growth

Financial Structure and Operating Efficiency of Housing Cooperative Societies

Housing co-operatives contribute to the social-economic growth of a country. They are voluntary in concept and owner-user and based on members’ loyalty. Therefore, this study sought to establish the relationship between financial structure and operating efficiency on housing co-operative Societies in Nairobi City County, Kenya. The data collection form was used to record data of all the elements of financial structure and operating efficiency from audited financial statements. Housing co-operatives, which constituted 50.3% of response rate were analysed using a two-stage process: data envelopment analysis and regression analysis. The first stage involved the use of DEA model to compute the efficiency scores, which were regressed in the second stage using linear regression analysis. The results from DEA output indicate that most of the housing co-operatives were inefficient while the regression results indicated that a positive and significant relationship existed between financial structure and operating efficiency. Therefore, this study recommends that housing co-operatives should formulate strategies that would grow their operations to reduce operational costs and enhance management efficiency. Besides, there is a need for housing co-operatives' boards of directors to make prudent investment decisions that would help members’ maximize social and economic goals

Effect of Remittances from Diaspora on Financial Sector Deepening in the East African Community

Purpose – This paper investigated the effect of diaspora remittances on financial sector deepening in the East African Community. Personal diaspora remittances were used as a measure of remittances from diaspora. The three proxies for financial deepening that were employed in the study were domestic credit as a ratio of GDP, total credit provided by the financial sector as a percentage of GDP and degree of monetization, M2 as a percentage of GDP. Methodology – The study adopted an explanatory research design. It employed panel data analysis - fixed effects method, to model the linear regression equation. The population of the study was the five East African Community member countries and covered a 20-year period (1997 to 2016).      The data for this study was obtained from the World Bank statistics website. Findings – This study established that there exists a positive relationship between remittances from diaspora and financial sector deepening in the EAC but this relationship is not significant. The three models analyzed in this study, show that a 0.31, 0.08 and 0.28 change respectively, in remittances in the respective models, leads to a unit change in the level of financial sector deepening in the EAC. Implications – The results of this study show that an increase in the level of remittances leads to increased financial deepening in the EAC economies. There is therefore need for the government in liaison with the private sector, to provide a conducive environment for development of financially innovative products that ease and reduce the cost of sending remittances as this will foster further financial deepening, which has the positive effect of financial inclusion, access to credit and economic growth. Value – This study recommended the fostering of activities that are geared towards the ease of sending remittances and cost reduction of sending the remittances through employment of new financial technologies. Further studies have also been recommended to increase the frontiers of the study especially on developed countries in order to gain more conclusive understanding and generalizability of the remittances-financial sector deepening nexus

THE EFFECT OF GENERAL ELECTIONS ON STOCK RETURNS AT THE NAIROBI SECURITIES EXCHANGE

The performance of the financial markets is significantly impacted by the political environment during eneral ellections. This paper focussed on the effect of general ellections on the stock retuns at the Nairobi Securities exchange. Emperical results have given inconsistent results on whether general election events negatively of positively impact the stock return. The study adopted event study methodology and analysed secondary data collected from the NSE around the 1997, 2002, 2007 and 2013 general election dates in Kenya. The study found that market reaction to elections is highly negative or positive depending on the volatility of the election environment. Analysis of the cumulative abnormal returns (CAR) found that the 2002 and 2013 general elections were insignificant, while the CAR around the 1997 and 2007 general election events were found to be significant at 5% level of significance. The study, thus recommends that stock market, investors and other stakeholders not to overlook electioneering events, and to implement policies that will cusion the security market against political risks during general elections to enhance investor confidence

Intervening Effect of Cash Holdings in the Relationship Between Financial Performance and Dividend Policy

Many studies on relationship between financial performance and dividend policy have resulted to controversial outcome with few studies questioning the intervening effect of cash holdings. The purpose of this study was to evaluate the effect of cash holdings on the relationship between financial performance and dividend policy. The study applied positivism research philosophy and descriptive causal research design. The study was anchored on hypothetical view that the relationship between financial performance and dividend policy of firms listed at the Nairobi securities exchange is not intervened by cash holdings which was tested against a sample size of 31 firms listed at the Nairobi securities exchange selected using purposive sampling technique. The research findings were as follows: There was a significant direct association between operating cash flows and dividend policy which was intervened by cash holdings. In general it was concluded that the link between financial performance and dividend policy of firms listed at the Nairobi securities exchange was significant. The study outcome augment existing knowledge on financial performance and dividend policy for it is evident that firms with ability to generate income directly influence dividend payout ratio and therefore, top management should enhance financial performance and not dividend policy which is irrelevant. Cash holdings intervenes this relationship hence the level of cash balances maintained by the firm explain more on the reason why some firms pay more dividend on increase of profitability levels while others does not. Regulatory bodies such as Capital Market Authority and Centre for Corporate Governance use these research findings to improve their financial viability assessment approach of firms listed at the Nairobi securities exchange

Financial Performance and Dividend Policy

Past studies on the relationship between dividend policy and firm performance continue being an unresolved predicament with few studies interrogating the causality relationship between financial performance and dividend policy. The purpose of this study was to establish the nature of relationship between financial performance and dividend policy of firms listed at the Nairobi securities exchange. The study applied positivism research philosophy and descriptive causal research design. The study was anchored on hypothetical view that the relationship between financial performance and dividend policy of firms listed at the Nairobi securities exchange is not significant which was tested against a sample size of 31 firms listed at the Nairobi securities exchange selected using purposive sampling technique. The research findings were as follows: There was a statistically significant direct association between return on equity and dividend policy. This implies that as firm profitability improve; a corresponding proportionate change in dividend payout ratio is initiated by management. In addition, it was established that there was a statistically significant positive linkage between operating cash flows and dividend policy which denotes that as cash flow levels from operating activities change, dividend payout ratio will change in the same direction leading to increased distribution of cash dividend to investors. Also, a statistically significant direct connection between price earnings and dividend policy was established. This relationship shows that increase in share market value positively prompts increased dividend payout ratio whereby the management follow a more acceptable dividend policy by the shareholders. However, market to book value depicted a weak insignificant inverse relationship with dividend policy and was dropped. In general it was concluded that the link between financial performance and dividend policy of firms listed at the Nairobi securities exchange was significant. The study outcome augment existing knowledge on financial performance and dividend policy for it is evident that firms with ability to generate income directly influence dividend payout ratio and therefore, top management should focus on financial performance strategies and not dividend policy which is irrelevant. Regulatory bodies such as Capital Market Authority and Centre for Corporate Governance use these research findings to improve their financial viability assessment approach of firms listed at the Nairobi securities exchange