Effect of Firm Characteristics on the Financial Performance of Commercial Banks in Kenya

The study aimed to examine the effect of firm characteristics on the financial performance of commercial banks in Kenya by examining the effect of capital adequacy liquidity, credit risk and bank size on the financial performance. A descriptive research design was used in the study. The study focused on the 36 commercial banks which had complete dataset for the period 2013 – 2018. The study used secondary data acquired from the published yearly financial documents gathered from the Central Bank of Kenya. Analysis of the data was carried out using the STATA software. The relationship between independent and dependent variables was analyzed using descriptive statistics and panel data regression analysis while the strength between the variables was determined using correlation. The financial performance was measured using Return on Equity. Results on the regression models indicated that capital adequacy and bank size had a positive effect on the return on equity of the commercial banks in Kenya. Liquidity and credit risk were found to have a negative effect on the return on equity of the commercial banks in Kenya. Keywords: Capital Adequacy, Credit risk, Liquidity, Bank Size, Return on Equity DOI: 10.7176/RJFA/11-22-06 Publication date: November 30th 202

Effect of Equity Financing on Financial Performance of Deposit Taking Microfinance Institutions in Kenya

A firm’s financing structure has great significance in financing and investment choice, because of its effect on profitability, with risk levels the firm encounters because of its dependence and leverage intensifying. Nowadays, more and more entities from the developed world employ different sources such as equity financing to finance its operations when they need to expand their firm size or reinvest to gain more profits. Despite the availability of equity and other financing sources, the performance of DTMIs in Kenya has continued to deteriorate. This study thus sought to establish the influence of equity financing on financial performance of DTMIs in Kenya. This study employed a descriptive research design. The study carried out a census of the 13 DTMIs in Kenya as at 31st December 2018. The study embraced secondary data that was  collected using a data collection sheet for a period of five years (2014-2018). For the purpose of data analysis, the study employed both descriptive and inferential statistics analysis methods using SPSS version 23. Under descriptive statistics, central tendency measures were employed. These included: mean, maximum, minimum and standard deviation among others. Inferential statistical analysis was used in predicting the relationship existing between equity financing and financial performance. The findings of the study indicate that equity financing has a positive significant influence on financial performance of DTMIs in Kenya. The study therefore recommends management of the DTMIs to increase their equity financing by selling their shares to potential shareholders and investors. Key words: Equity, Financial performance, financing structure DOI: 10.7176/RJFA/11-17-09 Publication date:September 30th 202

The Effect of Mobile Money Transfer on Working Capital Management: A Case of Debt Collection at NAWASSCO.

Adequate working capital is essential for smooth running of an enterprise. The way organizations manage their accounts receivable has significant implications on their financial health. Developments in information technology have permitted alternative functionalities for mobile handsets beyond the original communication function. Mobile money transfer is a key driver in the innovative landscape of management of accounts receivables. Despite the simplicity of this innovation, empirical evidence detailing the impact of MMT on management of accounts receivables and specifically debts is lacking. This is a case study that targeted household clients of NAWASSCO. The study involved analyzing the effect of M-pesa on debtor collection period for a period of four years (July 2007–December 2011) with the following objectives; to determine the debtor collection period for the periods of the study, to ascertain the trend of debtor collection period at NAWASSCO, and to assess the relationship between M-pesa payment ratio and debtor collection period at NAWASSCO. Both descriptive and inferential statistics have been used in data analysis. Under descriptive statistics the means and standard deviation for the period were analyzed. Under inferential statistics correlation analysis was used. The findings of the study were as follows: There was a reduction in Debtor collection period from 53.6 days during pre M-pesa period to 27.7 days during the post M-pesa period. There is an upward trend in the usage of M-pesa in settlement of water bills throughout the study period. The correlation coefficient was (r= 0.008) meaning that there is a random, nonlinear relationship between the two variables .i.e. use of MMT for bill payment and Debt collection at NAWASSCO. Other moderating variables were MMT Regulation by government, Service Providers Efficiency, Accounts payables and inventory as other entities of working capital. Coefficient of determination (R2) of 0.56 (56%) implied that M-pesa usage for bill payment had 56% influence on reduced debtor collection period at NAWASSCO. The remaining 44% is attributed to other components of working capital i.e. inventory and accounts payable. The coefficient of determination, r2, is useful because it gives the proportion of the variance (fluctuation) of one variable that is predictable from the other variable. M-pesa payment ratio was the independent variable while debtor collection was dependent variable. Keywords: Mobile Money Transfer (MMT), M-pesa, NAWASSCO, Debt collectio

Effect of Financial Structure on Financial Performance of Firms in the Construction and Allied Industry Listed at the Nairobi Securities Exchange in Kenya

Purpose: This study sought to establish the effect of financial structure on financial performance of firms in the construction and allied industry listed at the Nairobi Securities Exchange in Kenya. Equally important was to establish the effect of ordinary share capital, determine the effect of retained earnings, examine the effect of long term debts, and establish the effect of short term debts listed at the Nairobi Securities Exchange in Kenya. Materials and Methods: The study adopted a Census Research Design. The target population of the study was all the 5 firms’ listed under the Construction and Allied Sector of NSE. Therefore, a census method was adopted for this study where all the 5 firms listed under the Construction and Allied Sector of the NSE will participate in the study. Secondary data was used in the study and data collection instrument was used. Quantitative data analysis methods which are descriptive analysis method and inferential analysis method were used. The data collected was analysed using Stata version 13. To ascertain the relationship between financial structure and financial performance, a multivariate regression analysis was adopted on all the variables. Results: The study found that share capital, retained earnings and short term debts significantly affected the financial performance of listed construction and allied firm in Kenya while long term debt had a negative and insignificant effect on ROE. Only retained earnings positively affected ROE of listed construction firms in Kenya. The study concluded that financial structure is very critical to the financial performance of firms, therefore at every stage firms must determine the mode of financing that will have the highest effect on financial performance. Recommendations: The study recommends that management of listed construction and allied firms should not rely predominantly on ordinary share capital as the main source of financing. On retained earnings, the study recommends that management of listed firms should consider retained earnings as the first priority in their financing structure. On long term debts, the study recommend that management of listed firms should least prioritize long terms debts since it is expensive form of financing and should only be considered as a last resort or for high potential investment opportunities. On short term debt, it is imperative for management of firms to keep their short term debts as low as possible since these debts negatively affect the performance. Keywords: Retained Earnings, Share Capital, Short Term Debt, Long Term Debt, and financial performance. DOI: 10.7176/RJFA/12-18-04 Publication date:September 30th 202

Institutional Ownership and Commercial Banks Performance in Kenya: is there a Relationship?

Institutional ownership of commercial banks is of great importance given that it as an internal corporate governance mechanism. Different levels of institutional ownership in firms as revealed by recent studies indicate significance differences in their monitoring capability that subsequently impact on performance. Institution ownership, such as those made through pension funds and insurance companies play a critical role in influencing the firm’s performance, owing to the knowledge and experience they posses. This study sought to ascertain the relationship between institutional ownership and performance of commercial banks in Kenya that are licensed as companies under the Company Act Cap 486 and as banks under the Banking Act Cap 488. A survey was undertaken on 43 commercial banks that were operational between year 2001 and 2013. Bank performance was defined by three performance indicators namely: return on asset, return on equity and Tobin’s Q ratio whereas bank size was adopted as a moderating variable. Secondary data was collected from: annual financial reports, The Kenya Banking Survey 2013, Central Bank of Kenya bank’s annual supervisory reports, commercial banks websites, Central Bank of Kenya website, Bankscope, and annual returns filed by banks found at the Registrar of companies at the Attorney General Chambers Nairobi and returns filled at The Nairobi Security Exchange by listed banks. The data collected was analyzed using both descriptive statistics and inferential statistics where hierarchical regression under the panel data framework with the help of SPSS version 21.0 software was used. The findings of the study indicated that there is no relationship between institutional ownership and performance of commercial banks in Kenya when ROE, ROA and TBQ were used as performance measures and that bank size ha a moderating effect in this relationship. Keywords and Abbreviations: Institutional ownership, corporate governance, Central Bank of Kenya, institutional investors ,firm performance V.I.F.-Variance inflation factor, ROA-Return on asset, ROE-Return on equity, TBQ-Tobin’s Q ratioCBK-Central Bank of Kenya, CEO- Chief Executive officer.

Relationship between Board Composition and performance of Commercial Banks in Kenya

Commercial banks play a critical role in mobilization of resources from surplus to deficit units required to foster economic growth and development especially in developing countries. Although, in quite a number of these countries the need for development of sound corporate governance has been recognized as critical in enhancing stability in the banking sector, research on the links between governance at firm level and corporate performance in commercial banks has been scanty. This paper has explored this issue, paying particular attention on the relationship between corporate board independence and  the performance of commercial banks in Kenya for the period spanning 2001 to 2013. A period within which Central Bank of Kenya (CBK) issued three prudential guidelines on corporate governance that all commercial banks operating in Kenya must adhere to. Primary data for the study was obtained from 33 of the 43 commercial banks in Kenya by way of questionnaire administration, whereas secondary data was obtained from: annual published accounts, Nairobi Stock Exchange Publications, returns filed to the Registrar of companies at the Attorney General Chambers Nairobi, individual banks websites and Central Bank of Kenya website. Bank performance was defined by three key performance variables namely: ROA (Return on asset), ROE (Return on equity) and TBQ ratio (Tobin’s Q ratio); that are: financial, accounting and market measures of performance respectively. Bank size was adopted in the study as a moderating variable to capture bank specific characteristics. The data collected was analyzed using hierarchical regression under the panel data framework using SPSS 21.0 version. The key results indicated that board composition was not significant in the relationship between board composition and performance of commercial banks in Kenya. The results further indicated that there was no linear relationship between board composition and the TBQ ratio of commercial banks in Kenya when bank specific characteristics were excluded. Therefore if commercial banks in Kenya are to improve their performance they should direct their efforts towards other variables other than board composition. Keywords and abbreviations: Board composition, Banks performance, Corporate Governance, Central Bank of Kenya. V.I.F. is Variance inflation factor, ROE is return on equity, ROA is return on asset, and TBQ ratio is Tobin’s Q rati

Effect of Short-Term Debt on Financial Growth of Non-Financial Firms Listed at Nairobi Securities Exchange

A significant number of the non-financial firms listed at Nairobi Securities Exchange (NSE) have been experiencing declining financial performance which deter investors from investing in such firms. The lenders are also not willing to lend to such firms. As such, the firms struggle to raise funds for their operations. Prudent financing decisions can lead to financial growth of the firm. The purpose of this study is to assess the effect of short-term debt on financial growth of non-financial firms listed at Nairobi Securities Exchange for a period of ten years from 2008 to 2017. Financial firms were excluded because of their specific sector characteristics and stringent regulatory framework. The study is guided by Agency Theory and Theory of Growth of the Firm. Explanatory research design was adopted. The target population of the study comprised of 45 non-financial firms listed at the NSE for a period of ten years from 2008 to 2017. The study conducted both descriptive statistics analysis and panel data analysis. The result indicates that, short term debt explains 45.99% and 25.6% of variations in financial growth as measured by growth in earnings per share and growth in market capitalization respectively. Short term debt positively and significantly influences financial growth measured using both growth in earnings per share and growth in market capitalization. The study recommends that, the management of non-financial firms listed at Nairobi Securities Exchange to employ financing means that can improve the earnings per share, market capitalization and enhance the value of the firm for the benefit of its stakeholders. Keywords: Short Term Debt, Non-financial Firms, Nairobi Securities Exchange, Growth in Earnings per Share, Growth in Market Capitalization. DOI: 10.7176/RJFA/11-17-16 Publication date:October 31st 202

INFORMATION DISCLOSURES AND IMPLEMENTATION OF WATER PROJECTS IN MACHAKOS COUNTY, KENYA

This study investigated the effects of information disclosure as part of engagement of stakeholders on implementation of water projects in Machakos County, Kenya. The paper is guided by stakeholder theory advanced by Freeman (1984). The study was guided by causal comparative research design. The study targeted 172 water projects being implemented in Machakos County from the year 2016-2018 with the respondents being seven members of project management committees. Simple random sampling technique was used in selecting 17 water projects that was involved in this study. Questionnaires were used to collect data for the research. The collected data was analysed using both descriptive and inferential statistics. Qualitative data from open-ended questions was analysed using thematic content analysis. It was found out that there was an above degree level of correlation (r=0.584) between information disclosure and implementation of water projects. The paper concludes that when all information pertaining project is disclosed to the respondents, implementation goals would be achieved. On recommendations, the research suggests that communication needs to be improved during implementation stages to ensure every information from the project is relayed to all stakeholders.  Article visualizations

RELATIONSHIP BETWEEN CREDIT APPRAISAL AND LOAN PERFORMANCE BY COMMERCIAL BANKS IN UASIN GISHU COUNTY, KENYA

Commercial banks play a very important role in economic growth of nations as they channel financial resources from savers (surplus units) to lenders (deficit units). The aim of this paper is to explain the relationship that existed between loan policy of credit appraisal and loan performance by commercial banks located in Uasin Gishu County, Kenya. Theoretically, this paper is anchored on moral hazard theory developed by Akerlof (1970). The population of study comprised of all credit officers working in commercial banks in Uasin Gishu County. According to figures from banks, there are 189 credit officers in 39 commercial banks that are located in the county and thus formed the target population. A sample size of 128 was chosen for this study. Research result showed that 78.1% of commercial banks conducted credit appraisal through use of 5Cs credit appraisal technique, credit-scoring model and through credit reference bureaus. The research also found out that there existed significant positive relationship (r=0.206 and p=0.035) between credit appraisal and loan performance by commercial banks in Uasin Gishu County, Kenya. The paper recommends that there is need for commercial banks to consider using mobile telephony company’s financial statements for an individual borrower to check on the cash flow before awarding a particular loan. JEL: G21, E51, E51  Article visualizations