8 research outputs found
EFFECT OF FOREIGN EXCHANGE RATES VOLATILITY ON SHARE PRICES OF LISTED FIRMS IN KENYA
Since 1993 when the floating exchange rate regime was established in Kenya, the country has experienced tumultuous times regarding fluctuations in exchange rates. This continuous volatility has increased foreign exchange risk exposure which in turn has raised transaction costs of companies. Naturally, higher transaction costs results in lower profitability which subsequently affects the market prices of traded stocks. During the period 2008 to 2015, the Kenyan currency market experienced significant fluctuations in exchange rates – topping at the all-time high of Kshs 110 to the US dollar. This coincided with a period of depressed performance in the Nairobi Securities Exchange with regard to capitalization. This study sought to examine the effect of fluctuations in exchange rates on share prices of the listed companies in Kenya. Both the flow-oriented theory of exchange rates and efficient market hypothesis formed the theoretical foundation of the study. The study employed a longitudinal research design and a census of all the 61 listed companies was taken. The study utilized secondary data on the daily mean exchange rates between Kenyan shillings and United States Dollar and daily mean share prices for the 8 years period from January 2008 to December 2015.The relevant diagnostic tests for time series linear regression analysis were conducted to determine suitability of the collected data for the study. Regression analysis was performed to analyze the data. Both the F and t-tests were used at 5% significance level to test the significance of the overall model and coefficient of the independent variable respectively. The results of the study showed that exchange rates volatility had a significant adverse effect on the share prices. Based on this empirical finding, the study recommended that the managers of the Kenyan monetary system should adopt policies that promote stable exchange rate regime. Further, the study advocated for fast-tracking of the impending launch of the derivatives market in NSE to enable effective mitigation of the negative impact of exchange rates volatility in the economy. Article visualizations
WORKING CAPITAL MANAGEMENT AND FINANCIAL DISTRESS OF NON-FINANCIAL COMPANIES LISTED AT THE NAIROBI SECURITIES EXCHANGE
Financial distress is a common global phenomenon among the corporate entities. Locally, there is overwhelming evidence of firms that have undertaken financial restructuring, delisted from the exchange market, gone into receivership and subsequently liquidated on account of financial distress. This study therefore set out to examine the way in which management of working capital affects financial distress of non-financial firms listed at the Nairobi Securities exchange. In fulfilling this objective, the study sought to establish how cash management, inventory management and accounts receivables management effects financial distress of non-financial firms listed at Nairobi Securities Exchange. The free cash flows theory, Precautionary motive theory, financing advantage theory and liquidity theory formed the theoretical basis of the study. The study adopted longitudinal research design and collected secondary data over ten years period (2009-2018) from a census of the 40 non-financial firms listed in Nairobi Securities exchange. Descriptive statistical analysis was used to obtain the initial overview of the data collected. Inferential statistical analysis was undertaken using the F and t-tests at 95% confidence level. The study found that cash management had a positive and significant effect on the firms’ distress index. Further, the study revealed that inventory holding period was negatively and significantly related to the firms’ financial distress index. The study also showed that suppliers’ payment period had a positive and significant effect on financial distress indicator. The study however depicted a negative but insignificant relationship between receivables period and financial distress. The study recommended that the management of non-financial listed firms should ensure appropriate management of working capital components in order to guard against instances of corporate financial distress
JEL: O15; J24; L20
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INFLUENCE OF MICROFINANCE SERVICES ON FINANCIAL PERFORMANCE OF MICRO, SMALL AND MEDIUM ENTERPRISES IN KIRINYAGA COUNTY, KENYA
This study sought to ascertain the influence of microfinance services on the financial performance of MSMEs in Kirinyaga County. Specifically, the study sought to determine how microcredit services, micro-saving services and business consultancy services offered by Microfinance institutions influenced the financial performance of MSMEs within the county as operationalized by growth in their sales turnover. The study was anchored on the theories of Information Asymmetry and Financial Intermediation. The study’s target population comprised the MSMEs operating within Kirinyaga County and adopted the descriptive research design. The studied MSMEs were purposively selected from the townships of Sagana, Kerugoya, Kutus, Kagio, and Kagumo. Primary data was collected using structured questionnaires and analysis of the collected data was performed using descriptive and inferential statistical techniques. The results were presented using tables and charts. The study found that all the services offered by microfinance institutions had a positive and significant influence on the financial performance of MSMEs. Effectively, the study recommended that the owner-managers of the MSMEs should have more strategic engagement with the Microfinance institutions in tapping the services extended by them. Further, sustained efforts should be made by policy formulators to promote and strengthen microfinancing in pursuit of Vision 2030. JEL: L10; L20; M10; G20 Article visualizations
EFFECT OF INNOVATION STRATEGIES ON FINANCIAL PERFORMANCE OF THE BANKING INDUSTRY IN KENYA
Globalization and increasing market competitiveness have driven financial institutions toward innovativeness in their operation to gain sustainable competitive advantage and improve their financial performance. Financial institutions are not only competing on the basis of services but also on the basis of physical products as it is hard to distinguish between products of competing brands in a given product category. The increased competition in the banking industry in Kenya has led to the players in the industry to find alternative ways of surviving and performing well such as adopting innovative strategies. This study sought to establish effect of innovation strategies on financial performance of firms in the banking industry in Kenya. The study specifically focused on product innovation and organizational innovation and its effect on financial performance in the banking industry in Kenya. This study adopted a descriptive survey as the research design for the purposes of data collection. The population targeted 153 managers in ICT department, retail banking department and corporate banking departments from the 51 financial institutions headquarter in Nairobi. The study made use of both secondary and primary data that was obtained from the study respondents using a structured questionnaire. The study used both descriptive statistics such frequency distributions, percentages, frequency tables and pie charts to summarize and relate variables obtained from the administered questionnaire as well as inferential statistics of correlation and regression for analysis. Findings revealed that product innovation and organizational innovation strategies positively and significantly affect the financial performance of firms in the banking industry in Kenya. The study recommends the banking industry in Kenya to introduce new products and services, improvement of existing products and services since it improves their financial performance. There is also need for the banking industry in Kenya to offer a wide range of products than their competitors. The study recommends the banking industry in Kenya to adopt E-customer information data base as well as call centres and floor management. There is also a need for the firms in the banking industry to adopt computerized loan document generation, automated voice response, and automated cheque reconciliation systems as it increases the financial performance. The study further recommends the firms to centralize their loan application system and Electronic trading of shares so as to increase their competitive advantage. JEL: G21, L23, M21 Article visualizations
INFLUENCE OF CREDIT REFERENCING ON LOAN PERFORMANCE IN THE KENYAN BANKING SECTOR
Despite the decade-long existence of Credit Reference Bureaus in Kenya, lenders continue to grapple with a high prevalence of non-performing loans. However, available studies associate credit referencing with a reduction in bad loans among financial institutions. This is however doubtful considering the consistent rise in non-performing loans within the banking sector over the same period. It is this contrast that has motivated a follow-up study to establish an accurate empirical position. The study sought to investigate how credit referencing influences loan performance among Kenyan lenders. The study was anchored upon the Information asymmetry theory. The study adopted the descriptive survey research design and targeted 39 commercial banks and 14 registered microfinance banks operating in Kenya as of 31st December 2020. The study selected 21 commercial banks using a stratified sampling plan based on the 3 tiers as defined by the Central Bank of Kenya. It also included four microfinance banks. Structured questionnaires were used to collect primary data on the independent variable and a data collection sheet was used to collect secondary data on the dependent variable over a 10-year period. Respondents comprised the branch managers and credit officers. Both descriptive and inferential statistical analysis techniques were employed to obtain the findings of the study. The findings of the study showed that all the credit referencing parameters were negatively but insignificantly related to loan performance among Kenyan lenders. Consequently, the study recommended that the management of the banking institutions should pay close attention to the adverse credit information relating to borrowers. Further, banking institutions should operationalize a differentiated credit pricing model as a mechanism to reward borrowers with good credit history. The Central Bank of Kenya should also strengthen the banking supervision function so as to negate the growing trend in non-performing loans among the lenders by instituting appropriate sanctions.JEL: O15; J24; L20Â Article visualizations
An Assessment of Financial Literacy and the Performance of UWEZO Funded SME’s in Kirinyaga County, Kenya
The study sought to assess the financial literacy and performance of Uwezo funded SMEs in Kirinyaga County. Lack of finance has been attributed to be the cause of poor performance of SMEs necessitating the government of Kenya to initiate programs such as UWEZO fund to provide the much needed finances for the success of these SMEs. Among the Kenya government initiatives is the financial literacy training program that is provided to the UWEZO fund beneficiaries as a prerequisite for getting the funds. Guided by financial literacy theory the study surveyed the level of financial literacy among 88 uwezo funded SMEs who were randomly selected and assessed the effect of the financial literacy on the performance of the SMEs. The findings of the study reveal that there is a significant positive relationship between financial literacy and the performance of the sampled SMEs. It was established that the SME owners had good financial literacy skills in terms of personal savings, record keeping, credit management and budgeting but had difficulties in implementing these skills in their day to today business decisions. The study therefore recommends that the providers of the financial literacy training programs should have a review program to ensure that the SMEs are able to apply the skills acquired to be able to make better business decisions. The study also recommends that a similar study can be conducted on the same SMEs to identify the cause of the knowledge gap. Key words: Financial literacy, personal savings, record keeping, credit managemen
The Moderating Effect of the Listing Sector on the Relationship Between Capital Structure and Financial Distress of Non-Financial Companies Listed in Kenya
This paper sought to investigate the moderating effect of the listing sector on the relationship between capital structure and financial distress of listed non-financial firms in Kenya. In total, non-financial firms are listed across seven sectors depending on their primary commercial activity. Capital structure was operationalized by total debt, long-term debt and short term debt financing. The degree of financial distress was measured using the Altman’s Z-score index as reviewed for the emerging markets. Secondary data from audited and published financial statements was collected for the 40 listed non-financial firms for 10 years between 2007 and 2016. The study estimated the specified panel regression model for fixed effects as supported by the Hausman test results. Feasible Generalized Least Squares (FGLS) regression results revealed that the listing sector has a significant moderating effect on the relationship between capital structure and financial distress of non-financial firms. On the basis of these empirical findings, the study recommended that managers of listed non-financial companies should always consider the sector-specific factors in making leverage choice decisions for their entities. Keywords: Capital Structure, Financial Distress, Listing secto
Effect of Environmental CSR Activities on the Financial Performance of Financial Institutions in Kirinyaga County.
A new dimension to the corporate world have been brought up in the recent past by the CSR practices adopted by the financial institutions across the world. Previous research seeking to find out the effect of CSR on the financial performance of various institutions have yielded different results. This study aimed at finding out the effect of Corporate Social Responsibility activities on the financial performance of Financial Institutions in Kirinyaga County. Specifically, the study aimed at determining the effect of Environmental CSR activities on the financial performance of the financial institutions in Kirinyaga County. The study was based on the stakeholder’s theory. The study population was 300 employees working in the financial institutions in Kirinyaga County and a sample of 171 employees was used for the study. A causal research design was adopted while carrying out the research. The researcher used both the stratified and systematic sampling techniques to select the sample. Primary data was gathered through administration of questionnaires to the selected respondents in the financial institutions while Secondary data was sourced from journals, libraries, e-books and the websites of the financial institutions. Financial performance was assessed on the basis of the net profit after tax for the firms. The data was analysed using the SPSS version 23 software. The study found a strong positive relationship between environmental CSR practices and financial performance of financial institutions. The study recommended that financial institutions should invest in environmental CSR activities as such activities positively influence their financial performance. Keywords: Environmental CSR activities, financial performance, financial institutions, Kirinyaga County. DOI: 10.7176/RJFA/10-5-07 Publication date:March 31st 2019