The Effect of Interest Rate Differentials on Exchange Rate Volatility of East African Community Currencies

The study sought to test the effect of interest rate differentials on the exchange rate volatility of East African Community currencies. It used secondary data collected from Central Bank of Kenya, Bank of Uganda, Bank of Tanzania, Bank of the Republic of Burundi, National Bank of Rwanda and the IMF e-Library. A panel data model was used to regress average monthly exchange rates, interest rate differentials, inflation rate differentials and relative current account balances for a period starting from January 2013 to December 2017. Findings from the fixed-effects model showed that 98.8% of the variation in the exchange rate is explained by the three independent variables. Interest differential was the main independent variable with a coefficient’s value of 0.0274. This means that in East African Community an increase by 1 point in interest rate differential leadsto the depreciation of home currency by 0.0274 points. The study also found that the relative current account balance contributes also to the home currency depreciation with a coefficient’s value of 0.000052. However, the study could not be able to find the expected results for inflation differential as it has a negative coefficient’s value (-0.0075). This contradicts the economic theory on inflation differential and may due to other variables that were not included in the model but can be with great importance in the explanation of exchange rate movement. The study further suggested that more research can be carried out to bring forth more knowledge to the pool of literature on the relationship between interest rate differential and exchange rate volatility in the region

The Effect Of Cross Listing On The Accounting Quality Of Firms Cross Listed In East African Markets

Cross listing has been identified as a determinant of accounting quality. Prior empirical studies have differed on the effect of cross listing on accounting quality in different jurisdictions. The study of accounting quality in East Africa has however not incorporated the possible effect of cross listing. This research study sought to establish the effect that cross listing may have on the accounting quality of firms cross listed in East African stock exchanges. The study looked at three accounting quality metrics of firms cross listed in East Africa, namely, earnings management, timely loss recognition and value relevance of accounting information. The earnings management model used was the Lang, Raedy and Yetman (2003) earnings smoothing model. Timely loss recognition was investigated using the Basu (1997) model while value relevance was tested using the Lang, Raedy and Yetman (2003) model. These metrics were tested for differences during a three year period prior to cross listing and a three year period after cross listing. Accounting quality metrics for a total of six cross listed East African companies were analyzed. This study shows that earnings management did not occur around the cross listing dates. The value relevance of information presented by the cross listed firms did not change significantly, meaning that the ability of the summary accounting measures to accurately reflect the underlying economic value of the firms studied still remained as before the cross listing. There was no significant effect in terms of timely loss recognition in light of bad news and no indication of better prudence in the reporting of good news. The study finds that cross listing does not have an effect on the quality of reporting of firms cross listed within the East African Securities Exchanges

Does Portfolio Diversification Affect Performance of Balanced Mutual Funds in Kenya?

Literature provides conflicting results on the effect of diversification on performance of mutual funds with some studies showing a positive relationship (Markowitz, 1952; Muriithi, 2005; Kagunga, 2010), others negative (Chang & Elyasiani, 2008; Fiegenbaum & Thomas, 1998) and still others showing that there is no relationship between the two variables (Loeb, 1950). It is with this background that this study sought to establish the effect of diversification on performance of mutual funds in Kenya. The study took a descriptive research design approach on weekly performance of a sample of 7 balanced mutual funds for the year 2013.The study used secondary data sources available at the Capital Market Authority offices and from each mutual funds. The portfolio return was determined by computing the changes in prices of the balanced fund as traded at the Nairobi Securities Exchange (NSE) while diversification was determined from the level of Unsystematic Risk in the Performance. The study used the Ordinary Least Squares (OLS) multiple linear regression equation. Control variables of the size and age of the fund were introduced in the regression model. The results indicated the existence of a positive relationship between the Unsystematic Risk and Performance of balanced mutual funds with a beta coefficient of 0.069 (t=4.971, p < 0.5. This implies that the lower the diversification the higher the performance of mutual funds

THE EFFECT OF CORPORATE GOVERNANCE PRACTICES ON EARNINGS MANAGEMENT OF COMPANIES LISTED AT THE NAIROBI SECURITIES EXCHANGE

The objective of the study was to establish the effect of corporate governance practices on earnings management of companies listed at the Nairobi Security Exchange (NSE). The target population consisted of the 49 companies that had been continuously and actively trading at the NSE between January 2010 and December 2012. Secondary data was used covering the period 2010 to 2012 and analyzed using linear regression to test the effect of the independent variables on the dependent variable. The study found that earnings management is negatively related to ownership concentration, board size and board independence but positively related to board activity and CEO duality. The study recommended the need for effective corporate governance practices in listed companies in Kenya to contribute to reduced earnings management and avert possible collapse of listed companies in Kenya

THE EFFECT OF CORPORATE GOVERNANCE PRACTICES ON EARNINGS MANAGEMENT OF COMPANIES LISTED AT THE NAIROBI SECURITIES EXCHANGE

The objective of the study was to establish the effect of corporate governance practices on earnings management of companies listed at the Nairobi Security Exchange (NSE). The target population consisted of the 49 companies that had been continuously and actively trading at the NSE between January 2010 and December 2012. Secondary data was used covering the period 2010 to 2012 and analyzed using linear regression to test the effect of the independent variables on the dependent variable. The study found that earnings management is negatively related to ownership concentration, board size and board independence but positively related to board activity and CEO duality. The study recommended the need for effective corporate governance practices in listed companies in Kenya to contribute to reduced earnings management and avert possible collapse of listed companies in Kenya

Financial Literacy and Financial Wellbeing of Public Sector Employees: A Critical Literature Review

There is a great concern from researchers, government, and professional bodies about how consumers, households, students and employees manage their finances. A great number of people from both developed and developing countries are reported to be financially illiterate. Employees today are facing serious challenges in financial decision making that seems to emanate from the changes in financial markets and in social security pension schemes. They have access to financial literacy sessions at their workplaces yet this is not always reflected in the kind of lives they live. This provokes the question ‘does a more financially literate employee enjoy better financial wellbeing than a less literate person?’ The current study therefore seeks to critically review the literature to establish the documented relationship between financial literacy and financial wellbeing and possible intervening and moderating variables. The existing literature gaps are identified and recommended for further research. The results from the literature review indicate that financial literacy and financial wellbeing are defined and measured differently. Additionally, there seem to be a positive relationship between financial literacy and financial wellbeing but this relationship is intervened and moderated by financial decisions and demographic factors respectively

Board Structure, CEO Tenure, Firms’ Charactersitics and Performance of Financial Institutions in Kenya

The broad objective of this research was to determine the effect of board structure on the performance of financial institutions in Kenya and also to find out what the intervening and mediating influence of the tenure of the CEO and firm’s characteristics on this relationship might be. The specific objectives included; to examine the influence of board structure on performance of financial institutions in Kenya; to determine the intervening influence of CEO tenure on the association among board structure and performance of financial sector firms in Kenya; to examine the moderating effect of the firms’ characteristics on the association among board structure and performance of financial institutions in Kenya; and to ascertain the joint effect of board structure, CEO tenure and firms’ characteristics on performance. Secondary data was collected for a ten-year period from 2006 to 2015. Moderated and stepwise regression models and correlation analysis were adopted for the investigation of the association among the variables. The results showed that board structure had independent significant influence on performance of financial institutions; there was no significant intervening effect of CEO tenure on this relationship; there was a significant moderating effect of firms’ characteristics on the relationship; and the joint effect of board structure, CEO tenure and firms’ characteristics was significant. Through this study, the formulation of managerial policies and practices which will promote better governance practices and also appropriate the characteristics of firms and that will improve performance of financial institutions will be enhanced

Corporate Governance, Capital Structure, Ownership Structure, And Corporate Value Of Companies Listed At The Nairobi Securities Exchange

This paper focuses on establishing the relationship among corporate governance, capital structure, ownership structure, and firm value for companies listed at the Nairobi Security Exchange (NSE). The study tested three hypotheses that explored various aspects of this relationship: First, there is no intervening effect on the capital structure on the relationship between corporate governance and corporate value; Second, there is no significant moderating effect of ownership structure on the relationship between corporate governance and corporate value; and finally, there is no significant joint effect of corporate governance, capital structure, and ownership structure on corporate value. The data of the study was obtained from audited financial statements of the firms listed at the NSE. A census survey for sixty-four publicly trading firms at the NSE was undertaken. The data of 64 corporations was cleaned, leaving a smaller number of 58 firms which formed over 90% of the sample. The analysis covered a five-year period between 2013 to 2017. The study adopted a positivism philosophy and a descriptive design. Descriptive statistics and diagnostic tests were undertaken and thereafter inferential statistics, specifically correlation and regression analysis, were used for hypothesis testing. The multiple regression analysis was used to test the relationship among corporate governance, capital structure, ownership structure, and corporate value. The panel data procedure was considered more appropriate as the sample data contained both cross-sectional and time-series data. The Baron and Kenny’s (1986) approach was used to assess the intervening and moderating effect of capital structure and ownership structure respectively on the relationship between corporate governance and corporate value. Corporate Governance was measured by a composite of board independence, board size, board remuneration, and corporate gender diversity. Capital structure was measured by leverage, while ownership structure was measured by ownership concentration, state ownership, family ownership, and foreign ownership. Firm performance was measured using the Tobin Q. The joint effect of corporate governance, capital structure, and ownership structure on corporate value was found to be positive and significant. However, Ownership structure and capital structure had no significant moderating and intervening effects respectively on the relationship between corporate governance and corporate value. This study makes an original contribution as it takes a more holistic approach of corporate governance development by probing whether improving corporate governance is linked to the enhanced corporate value. The study recommends that corporate shareholders, boards, regulators, and management of listed corporations should put in place robust policies. This will ensure the implementation and monitoring of corporate governance principles and ensure congruence in their activities of the oversight of corporate objectives of optimizing corporate value and minimizing fraud and failure risks of corporations

The Intervening Influence of Enterprise Risk Management on the Relationship between Board Practices and Performance of Government Owned Entities in Kenya

The enterprise risk management is an integrated approach of risk management involving the executive management and board of directors including employees in identification, assessment, reporting and monitoring of strategic, operational, and financial risks across the entire organization.  This paper seeks to establish intervening influence of enterprise risk management in the relationship between board practices and performance. The data was sought from all 234 government-owned entities operating in Kenya. 153 GOEs returned properly filled up questionnaires. Secondary data on performance were derived from performance contracting reports. The data was analyzed using AMOS graphics to obtain CB-SEM paths with the aid of IBM SPSS version 26. The conceptual model was built on three latent variables, namely board practices, enterprise risk management and performance. The findings indicated that direct impact of board practices was positive and significant at 60%. The study further established that enterprise risk management significantly positively impacted performance by 26.8%. However, presence by enterprise risk management framework as an intervening variable reduces impact of board practices to performance from 0.600 to 0.268, although it remains positive and significant. Hence despite presence of enterprise risk management, indirect influence of board practices on performance remains significant indicating partial intervention. The enterprise risk management was therefore found to have significant effect as an intervenor on the relationship between board practices and performance. It is therefore important for government owned entities to prioritize implementation of an integrated system of oversight that includes board practices and enterprise risk management framework in order to enhance their overall performance. Keywords: Strategic, Enterprise Risk Management, Conceptual model, Board practices, Performance, Framework DOI: 10.7176/EJBM/15-19-09 Publication date: December 31st 202

Gender Diversity of Boards, Board Composition and Firm Performance

The broad objective of this research was to determine whether gender diversity of boards and board composition, affects performance. Secondary data was collected for a ten-year period from 2006 to 2015 from 98 sampled financial institutions. Multiple regression analysis and generalized estimating equations were used in analysis of the collected data. Parametric and nonparametric methodologies were used. The study was anchored on the agency theory, stakeholder theory, the human capital theory and resource dependence theory. The results show that, gender diversity of boards and board composition had no independent significant influence on performance of financial institutions. Through the study formulation of managerial policy and practice that promote better governance practices and appropriate firm characteristics that improve performance of financial institutions will be enhanced