Membership Characteristics and Financial Performance of Investment Groups Investing in Securities Market in Kenya

Investment groups provide a system of mobilizing together capital, lowering risks per individual and availing cheap capital for microenterprise growth. How the membership structure dimensions of an investment group affect its financial makeup is not well understood. The objective of the study was to assess the role of membership characteristics in the financial performance of investment groups in Kenya. Descriptive survey design was used and stratified sampling technique applied to select group members and investment groups. The data collected was analyzed using inferential statistics via regression analysis. The results indicate that group membership structure dimensions, such as experience, gender, occupation, business training and ethnic diversity, has a positive and statistically significant effect on financial performance of investment groups, which participate in securities markets in Kenya. Policies that entrench gender issues in investment groups and encourage creation of investment groups which are ethically balanced and occupationally diverse are critical in the success of such groups. Policies should be crafted by the investments group lobby outfits, which will facilitate training programs and forums to educate the members on investment skills and proper management practices as well as need for diversification of group investment portfolios. Keywords: Group Membership Characteristics; Group Financial Performance; Group Ethnic Diversity; Kenya Association of Investment Groups; Chama Investments. DOI: 10.7176/JESD/11-10-15 Publication date:May 31st 202

Organizational Structure and Financial Performance of Investment Groups Participating in Kenyan Capital Markets

The idea behind collective investment through group formation has shape the investment growth in Kenya. Individuals come together to form homogeneous or heterogeneous groups to enable them raise adequate investment capital. They invest in an array of assets and portray different financial performance. However, there is scanty evidence on how the form in which an investment group is organized affects its financial performance. Therefore, the objective of the study was to assess the effect of organizational structure on the financial performance of investment groups in Kenya which invests in capital market securities. Descriptive survey design was used and stratified and simple random sampling techniques were used to select a sample of 130 investment group members and 130 investment groups, which invest in capital markets. Data was analyzed using both descriptive and inferential statistics. The results indicated that group organizational structure generally positively and significantly affects financial performance of investment groups in Kenya. The group organization structure dimensions having a significant positive effect on group financial performance were organization form, financial management, accounting and auditing. The study recommends that policies should be created to encourage incorporation and formalization of investment groups as a strategy to spruce up their financial performance. Registrar of groups should insist on registration only for groups which are registered for tax and with articles and memorandum of associations detailing clear rules for joining, exit and sharing of group profits. Keywords: Investment Group Organization Structure, Group Financial Performance, Chama Investments, Kenya Association of Investment Groups. DOI: 10.7176/JPID/54-05 Publication date:May 31st 202

Exchange Automation and Adaptive Efficiency at the Kenyan Securities Market

Developments in electronic trading has played an increasing role in changing the microstructure of securities markets. Worldwide, securities exchanges are gradually replacing their traditional physically convened markets with electronic markets. In order to contribute to wealth maximization objective of investors and economic growth, securities markets need to be efficient in terms of price discovery process. The Nairobi Securities Exchange has automated it operations by installing an automated trading and depository systems to improve its efficiency. Information is however lacking on how these changes have affected the informational efficiency of the Exchange. This study tried to determine whether the automation of the Exchange had improved its informational efficiency. Using secondary data collected from the Exchange on share prices for computing an All Share Index between 1994 and 2019, non-parametric approaches were used to measure market efficiency before and after market automation. The results show that market returns in the post-automation period were higher and more volatile than those in the pre-automation period. The higher returns can be attributed to improved price discovery process, while the higher volatility may be due to changes in market microstructure through use of electronic systems. While Normality tests indicate that returns are not normally distributed in both the periods, Runs test results reveal that returns are more random in the period following automation than the prior period, implying that the market has improved in efficiency. The introduction of automation in the Kenyan securities market has thus led to improved market efficiency, providing support for the adaptive market hypothesis. The Exchange should consider pursuing full market automation by enabling online and internet securities trading and use of mobile money transfer platforms in paying for stock transactions, in addition to the adoption of margin trading and a hybrid trading system (call and continuous) – to enhance liquidity and transparency in trading. Keywords: Automated Trading System, Central Depository System, Adaptive Market Efficiency, Market Microstructure, Nairobi Securities Exchange. JEL Classification: G14; G15 DOI: 10.7176/EJBM/12-15-06 Publication date:May 31st 202

Testing Market Integration for Fresh Pineapples in Kenya

This paper is based on a survey of thirty-one market actors from producing and consumption markets in Kenya. The data was collected through personal interviews. In analyzing integration of p ineapple markets we use Ravallion-type model. Results show that pineapple market in Kenya is oligopsonistic in nature with aspects of collusion amongst the urban middlemen and local market traders thus barring further entry by oth er potential actors. There was little market integration between urban markets and producing markets, and no integration between the rural producing markets. However, model results show that information flow between production and consumption markets significantly influence market integration, an indicator for efficiency in resource allocation and price transmission which is likely to result in lower transaction costs or higher profits to market actors. The paper recommends for policy intervention to promote information flow in the pineapple market chains as a strategy for improving rural incomes and encourage more market actors to enter and participate for efficiency in the marketing system.marketing Channel, Marketing efficiency, market integration, Crop Production/Industries, Marketing,

Analysis of Financial Performance of Income Generating Activities in Public Higher Learning Institutions: Experience from Egerton University, Kenya

Income generating units have been in operation in Kenyan Public Universities since the 1990s. Their establishment was aimed at cushioning the Universities from the effects of the reduction of Government capitation to finance their recurrent and capital expenditure. However, most Public Universities in Kenya still suffer from financial distress despite the creation of these IGUs. This study sought to evaluate the financial performance of the IGUs at Egerton University and its former Constituent Colleges between 2003 and 2012. Secondary data was collected from financial statements from which key financial ratios were computed and used to analyze the financial performance of the IGUs over a period of ten years. Empirical results indicated that Module II study programs were the most profitable IGU.  Furthermore, the IGUs recorded a fifteen percent rate of return on investment and a liquidity ratio of over 3. However, the declared surpluses did not take into account the personnel emoluments for the University staff working in the IGUs. There is need for public Universities to maintain accurate and complete sets of financial statements for informed decision making. Keywords: Financial Performance, Income Generating Activities, Financing Public Universities

RELATIONSHIP BETWEEN PROPERTY TYPE-LOCATION DIVERSIFICATION AND PERFORMANCE OF REAL ESTATE INVESTMENT TRUSTS IN KENYA

The listed REITs have not performed as well as anticipated, and efforts by REIT management to issue further real estate securities have been delayed. This raised the question of whether the unexpected performance of REITs in Kenya was caused by external variables, including property diversification, which is out of the control of the investment market. Thus, the study sought to examine the relationship between property type-location diversification and the performance of REITs in Kenya. The target group included fund managers, stock brokers, investment banks, and property developers. A predictive correlational research design was used. At a 5% significance level, regression analysis was used to test the hypothesized relationship between variables. The results indicate that property type-location diversification has a significant relationship with the performance of REITs in Kenya. The findings also show that the location of properties is a very important aspect for REIT investors when it comes to property diversification. There was agreement among most respondents that diversifying REITs across location attributes reduces market risks. It can be concluded diversification of the REITs underlying property majorly in terms of geographic and economic influence performance of REITs in Kenya. Further, property diversification through the type of property is a key determinant in influencing the performance of REITs in Kenya. Thus, continued property-type location will enhance the uptake of REITs by investors. It is recommended that REITs issuers ensure that there is diversification of the properties to include multiple property types such as students’ hostels, retail stores, hotels, and warehouses. Such a type of diversification is likely to attract potential investors who could be interested in properties with such diversification characteristics.  JEL: G40, R30, C12, C51, L21  Article visualizations

Moderating Effect of Economic Growth on the Relationship Between Foreign Private Capital Flows and Securities Market Development: Evidence from Kenya

Over the last decade, Kenya witnessed a surge in foreign capital flows through Diaspora remittances. Locally, Diaspora remittances attraction is one of the dominant development strategies with the potential of contributing to financial development. The surge in such foreign capital flows raises important questions about their impact on the financial sector, specifically, the securities market. Understanding the linkages between foreign capital flows and the securities market is critical, especially in Kenya where these inflows are rapidly increasing even amidst the global financial crisis and the global economic slowdown which should have contracted them. Available evidence shows that foreign financial flows affects financial development, and that economic growth also influence operations in the financial sector. A research gap still exists as to how the effect of foreign financial flows on securities market development may be influenced by economic growth. Using data collected from the NSE and CBK, this study examined the relationship between foreign financial flows and securities market development, while attempting to answer the critical question of how economic growth influences this relationship in Kenya. The empirical results show that there is a distinct positive relationship between foreign capital flows and securities market development in Kenya. The results further show that this relationship is moderated by the level of economic growth within the economy. This study fronts for policies aimed at promoting cheaper flow of remittances and increasing growth rate of the Kenyan economy. Keywords: Foreign Private Capital Flows, Diaspora Remittances, Securities Market Development, Nairobi Securitas Exchange, Keny

Does Economic Growth Influences the Relationship Between Financial Intermediaries and Securities Market Development in Kenya?

Available evidence from previous studies show that financial intermediaries influence operations at the securities market. Another strand of literature also show that economic growth has a positive influence on securities market operations. A research gap still exists as to how this influence of financial intermediary development on securities markets may be influenced by economic growth. This study examined the relationship between financial intermediary development and securities market development in Kenya and attempted to answer a critical question of how economic growth influences the relationship between commercial banks and securities market in Kenya? Financial intermediary development was proxied by the ratio of the gross domestic bank savings to GDP, while securities market development was proxied by an index nuancing the market capitalization ratio, value traded ratio, and market turnover ratio. The empirical results show that there is a distinct positive relationship between financial intermediary development and securities market development in in Kenya. The results further show that this positive relationship was moderated by the level of economic growth within the economy. The study recommends that any strategy to develop the securities market must also address the development of the financial intermediaries through savings mobilization as well as macroeconomic stability and growth. Keywords: Commercial Banks, Financial Intermediary Development, Securities Market Development, Nairobi Securitas Exchange

Testing Applicability of Capital Asset Pricing Model in the Kenyan Securities Market

The capital asset pricing model (CAPM) developed by Sharpe (1964), Lintner (1964) and Black (1972) stipulate that the expected return on a stock is determined by the risk free interest rate and a risk premium. Early empirical tests of the model generally supported its main prediction as Beta being the only explanatory factor in explaining the cross sectional variation across stock. However, more recent empirical work on asset pricing has identified a number of variables that help explain cross sectional variation in stock returns in addition to the market risk. The validity of the capital asset pricing model, as well as the firm specific factors that explain stock returns in Nairobi Stock Exchange (NSE) has not been conclusively addressed. The purpose of this seminar paper is to investigate the risk-return relationship within the CAPM framework, and explore whether CAPM is a good indicator of asset pricing of stock returns in the Kenyan stock market for the period January 2009-December 2010. That is, to examine empirically how well the market equilibrium model explains the risk return relationship in the Kenyan market. Secondary data was collected from the monthly Bulletin of the Nairobi Stock Exchange and the Central Bank of Kenya. A methodology similar to that of Fama and French (1992) was employed by taking into account the constraints imposed by a smaller sample both in time and in terms of number of stocks. Both market return and security return were computed. The empirical findings indicate that the Sharpe-Lintner-Black CAPM inadequately explains the Kenya’s equity market economically and statistically significant role of market risk for the determination of expected returns. The empirical findings do not support standard CAPM as a model to explain assets pricing in Kenyan equity market. Keywords: Arbitrage Pricing Theory, Capital Asset Pricing Model, Market Returns, Nairobi Securities Exchange

Do Stock Splits Affect Ownership Concentration of Firms Listed at the Nairobi Securities Exchange?

Corporations split their shares in order to make them more affordable to the retail investors. Theoretically, increased buying of the stock post split by retail investors should be experienced. Existing literature on effect of stock splits are from studies conducted in developed markets, much of it focusing on market efficiency. The objective of this study was to analyze the effect of stock splits on ownership structure of listed firms in Kenya. Using a data collection sheet, secondary data was collected from the published financial statements of listed firms, which had conducted stock splits between 2004 and 2010. A Herfindahl- Hirschman Index was used to measure ownership concentration among the top ten shareholders before and after the split. The overall change in ownership structure was analyzed using the Wilcoxon Rank Sum Test at 95% confidence level. The results show that although the ownership structure for the companies in the study significantly changed, the change was generally not in favor of retail investors. Contrary to expectations, the holding by institutional investors significantly increased in most cases, implying that stock splits do not cause enough interest in the shares amongst retail investors to tilt the proportions owned in their favor. To the contrary, stock split encourages retail investors to off load their shares in a bid to lock in profits occasioned by the appreciation in the value of the shares after the split. An important recommendation for market regulators and corporate managers is that a stock split may not be a useful tool for dispersing firm ownership but rather only for improving stock liquidity. Investors looking to buy stocks that have announced a stock split should carefully analyze their information content, because during stock market bubble a split may not convey accurate future prospects for the company. Given the increased demand for stocks when a split is announced, it is an ample opportunity to lock in profits for investors looking to sell their shares. Keywords: Controlling Shareholding; Ownership Concentration; Ownership Structure; Stock Splits; Nairobi Securities Exchang