Revenue Effects of Tax Reforms, Economic Growth and Political Environment in Kenya

This study investigated the effect of tax reforms, economic growth and political environment on total tax, direct tax and indirect tax revenues using annual data for the period 1964-2016. Various techniques of analysis were employed: descriptive statistics, multi-segment regressions and non-linear regression. Results show that: all taxes responded positively to each of the tax reforms; changes in all taxes were affected by the reforms because GDP was also growing; economic growth has positive significant effect on all the categories of taxes; Government effectiveness has positive impact on indirect taxes; and that even though government control of corruption effect on tax revenues is statistically insignificant, it could promote the revenue generation more than economic growth. These findings have a number of policy implications: the government should put more emphasis on governance in order to promote revenue collection. Government effectiveness and control of corruption would go a long way to enhance tax compliance, reduce tax avoidance and evasion, eliminate illicit flows and reduce illegal collusion between tax payer and tax administrator that may deprive government of due revenues.  Secondly, government must work towards designing and implementing in the reforms that make the tax system more buoyant, and link it more to economic growth.Key Words: Tax Revenues; Tax Reforms; Economic Growth; Governance/political environment; Budget Deficit; Public Debt

Effects of Capital Structure on Financial Performance of Firms in the Commercial and Services Sector Listed at Nairobi Securities Exchange in Kenya

Performance of firms can be attributed to many factors; capital structure often considered one of the factors. A number of empirical reviews indicate that firms with higher leverage often exhibit features of an optimal capital structure, hence to good performance. However, Modigliani and Miller theorem disapproves this notion and asserts that capital structure has no effect on firm value.  This study investigates the effects of capital structure on financial performance of firms in the Commercial and Services sector at Nairobi Securities Exchange (NSE) in Kenya. A descriptive survey design was used to gather primary data from 9 Commercial and Services sector firms covering a period between 2007 and 2010 and secondary data obtained from NSE handbook. Descriptive statistics and correlation and regression analysis model was adopted for data analysis. The correlation and regression result between financial leverage and ROE finds that there is a negative correlation of -0.235 and the coefficient of financial leverage of -3.781 respectively. Similarly, the regression result finds that the coefficient for financial leverage and ROA is - 0.1.178, which is not statistically significant at 10 percent level, at t-value of -1.234 and p-value of 0.228 that is greater than 0.1.Finally, Phi and Cramer's V tests finds the hybrid system to be the preferred financing structure. This study rejects the null hypothesis and concludes that there is significant relationship between financial leverage and financial performance of enterprises listed in NSE, Kenya. Keywords: Capital Structure, Financial Performance, Nairobi Security Exchange DOI: 10.7176/RJFA/14-13-01 Publication date:July 31st 202

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

Causes of Congestion in the Justice System. Does Macroeconomic Environment Matter?

Public services rendered by the justice system institutions are susceptible to congestion which arise from partial rivalry in consumption of these services. This paper investigated the causes of congestion in Kenyan justice system laying emphasis on select macroeconomic variables. A structural model was estimated using instrumental variable method, that entailed the use of data for the period 1960-2016. The findings were that increase in funding to justice system institutions, economic growth and enhanced resolution of cases reduces congestion. We recommend that the Government efforts to reduce congestion should cut across the demand and supply side of the justice market, and on environmental factors that affect the proper functioning of the justice sector. This should involve setting time limits, preferably through legislations, on the maximum period different types of cases should take to be finalized. Such a legislation could also specify the timelines that other players in the justice sector should take to finalize their legal tasks in relation to dispute resolution process. Further, allocation of optimal fiscal resources to justice system institutions would be crucial in financing congestion reduction programmes especially on uptake of technology and upgrading of capital infrastructure. Keywords: Congestion, Macroeconomic Variables, Cause

Effect of Mergers and Acquisitions on the Financial Performance of Commercial Banks in Kenya

The study focuses on the effects of merger and acquisition on the financial performance of financial institutions in Kenya. The study adopts a descriptive study design using event study model to analyse the relationship existing between the accounting ratios (EPS, ROA and ROE) as measures of financial performance. The study finds that that merger and acquisition events results into either increase or decrease in the financial performance. The significance test finds that the p-value for EPS, ROA and ROE and were 0.587, 0.069 and 0.597 respectively, all greater than 0.05 signifying that the financial performance deviated significantly from the means recorded before the merger. The cumulative abnormal mean performance of EPS, ROA and ROE to 0.167, 5.274 and -1.823 respectively, hence the study concludes that merger and acquisition positively affect financial performance of commercial banks. The negative ROE is attributed to the single extreme negative performance recorded by ECB. The study recommends that managers to consider taking the corporate action to take advantage of the benefits of mergers and acquisitions. Keywords: Mergers and Acquisition, Financial performance, Commercial Bank

Effect Of National Annual Budget Reading On Equity Returns At The Nairobi Securities Exchange

The objective of this study was to investigate the effect of budget reading on equity returnsat Nairobi Securities Exchange. The study adopts descripting staristics design using eventmodel methodology to establish the correlation between the variables. Secondary data onstock performance around the 2009, 2010, 2011, 2012and 2013 budget reading dates wascollected from the NSE database. Data analysis was done using SPSS program to generatethe descriptive statistics, and the study finds that the reading of national budget hassignificant effect on the stock returns at NSE duringthe event period, depending oninformation content. Analysis of the AAR, CAR and SCAR of the companies in the NSE-20share index, during the 5 day event period before and after the annual national budgetreading finds that other than year 2010 that recordsno statistical significance of SCAR, theSCAR p value for 2009, 2011, 2012 and 2013 are allless than p = 0.05, suggesting that themarket returns for four years deviated significantlyfrom their means during the eventperiod of budget readings. Therefore, the study recommends that investors, investmentbanks, listed companies and the capital markets authority to consider the effect of nationalbudget reading on stock returns, to formulate policies that can cussion investors against theeffects of budget reading

Regional Trade Agreement and Agricultural Trade in East African Community

According to World Bank statistics, agricultural activities contribute about 33 per cent of the East African Community’s Gross Domestic Product, and up to 80 per cent of the populace depends on agriculture directly and indirectly for food, employment and income, while about 40 million people in EAC suffer from hunger. Intra-EAC trade is very low, that is, at 9 per cent of the total regional trade, but it is on upward trend. Agricultural trade accounts for over 40 per cent of the intra-EAC trade. This study investigated the effect of EAC regional trade agreement on the regions agricultural trade by analyzing the degree of trade creation and diversion effects. Several Augmented gravity models were estimated using the Pseudo Poisson Maximum Likelihood (PPML) Approach. Panel data from UNCOMTRADE, International Financial Statistics and World Development Indicators for the period 2000 – 2012 on the five EAC members and other 77 trade partners were used. The empirical findings showed mixed results for the different EAC member states. EAC regionalism had no significant effect on agricultural exports of Burundi, Rwanda and Uganda, while Kenya and Tanzania had reported significant effect of regionalism on their agricultural exports. This study concluded that EAC regional trade agreement has a potential of promoting EAC regional agricultural trade

Intra-Regional Agricultural Exports in the East African Community

This study investigated the causes of intra-EAC agricultural exports. Five Augmented gravity models were estimated using the Pseudo Poisson Maximum Likelihood (PPML) Approach. The study used panel data from UNCOMTRADE, International Financial Statistics and World Development Indicators for the period 2000 – 2012 on the five EAC members. The intra-EAC agricultural exports depended on various factors, including GDP of exporter, GDP of the importer, Exchange rate, distance between the economic centers, language similarities, adjacency and population of the exporter. EAC secretariat and respective governments in EAC should also reduce currency value disparities among the member states as a means of promoting intraregional agricultural trade. The proposed monetary union and harmonization of currencies would significantly promote agricultural trade within the region. The EAC member states should also enhance border liberalization, as this will also promote intra-regional agricultural trade, among other measures

Revenue Effects of Tax Reforms, Economic Growth and Political Environment in Kenya

This study investigated the effect of tax reforms, economic growth and political environment on total tax, direct tax and indirect tax revenues using annual data for the period 1964-2016. Various techniques of analysis were employed: descriptive statistics, multi-segment regressions and non-linear regression. Results show that: all taxes responded positively to each of the tax reforms; changes in all taxes were affected by the reforms because GDP was also growing; economic growth has positive significant effect on all the categories of taxes; Government effectiveness has positive impact on indirect taxes; and that even though government control of corruption effect on tax revenues is statistically insignificant, it could promote the revenue generation more than economic growth. These findings have a number of policy implications: the government should put more emphasis on governance in order to promote revenue collection. Government effectiveness and control of corruption would go a long way to enhance tax compliance, reduce tax avoidance and evasion, eliminate illicit flows and reduce illegal collusion between tax payer and tax administrator that may deprive government of due revenues. Secondly, government must work towards designing and implementing in the reforms that make the tax system more buoyant, and link it more to economic growth