Factors Affecting the Financial Performance of Listed Companies at the Nairobi Securities Exchange in Kenya

With the increasing trend of sudden corporate failure in both global and local context, shareholders and other stakeholders are increasingly becoming more concerned of the financial performance of their firms. The study therefore aimed to find out the factors affecting the financial performance of listed companies at Nairobi Securities Exchange in Kenya. It was informed by trade off and the agency theories. The study adopted an explanatory research design and 29 listed firms (excluding listed banks and insurance companies) which have consistently been operating at the Nairobi securities exchange during the period 2006-2012 were sampled. Purposive sampling technique was used. The analysis of the data collected from financial statement followed a number of basic statistical techniques. Descriptive statistics (mean and standard deviation) and inferential statistics (Pearson correlation and multiple-regression) were used to analyze data. Pearson correlation was used to ascertain the interrelationship between the variables, whereas multiple-regression was used to assess the extent of the effect of the independent variables on the dependent variable. Study findings showed that leverage had a significant negative effect on financial performance (?1 = -0.289, ?<0.05). Findings also showed that liquidity had a significant positive effect on financial performance (?2 = 0.296, ?<0.05). Company size had a significant positive effect on financial performance (?3 = 0.480, ?<0.05). The study also revealed that company age had a significant positive effect on financial performance (?4 = 0.168, ?<0.05). The study provides some precursory evidence that leverage, liquidity, company size and company age play an important role in improving company’s financial performance. The study suggests that there is need to determine an optimal debt level that balances the benefits of debt against the costs of debt and developing sound techniques of managing current assets to ensure that neither insufficient nor unnecessary funds are invested in current assets as maintaining a balance between short-term assets and short-term liabilities is critical. The study also suggest that firms should expand in a controlled way with the aim of achieving an optimum size so as to enjoy economies of scale which can ultimately result in higher level of financial performance. Keywords: Financial Performance, Liquidity, Leverage, Company Size and Ag

Pecking Order Theory Test of Firms Listed at East Africa Securities Exchanges

For a long time, there has been debate on whether firms have a preferred hierarchy of financing structure. Indeed, pecking order theory argues in favour of a preferred hierarchy of financing decisions with the highest preference being to use internal financing or retained earnings first, then debt and lastly external equity or shares. While some scholars have supported the existence of that rigid structure, others have argued to the contrary. Empirical works have yielded mixed results on the same. This study therefore analysed the relationship between financial structures and financial performance of listed firms at the East Africa Securities Exchanges in an attempt to validate the pecking order theory. The study employed explanatory research design with secondary panel data from the financial statements of 61 firms retrieved from the securities exchanges hand books for the period December 2006-2014. Descriptive statistics, Feasible Generalized Least Squares method, random effect for models without moderator and fixed effect for models with moderator, based on Hausman specification test were used. The study found out there is no preferred hierarchy and that various markets had their own preferred choices. As to the relationship between financial structure and return on assets or return on equity amongst securities exchanges, the study revealed that such relationships are different. It is therefore recommended that firms should use shareholders’ funds as much as practical before they result to borrowing. Firms should also look at and evaluate the political, economic, social and technological environment within their markets together with their internal environment ranging from opportunities available, management potential and industry threats among others, before making decision on the mode of raising finance. Keywords: Financial performance, financial structure, pecking orde

Determinant Affecting Performance of Supply Chain Systems in the Petroleum Industries in Kenya

The purpose of this paper was to analyze the effect of crude oil price as a determinant on performance of supply chain systems in the petroleum industries in Kenya. Supply chain is a dynamic process and involves the constant flow of information, materials, and funds across multiple functional areas both within and between chain members. Members in the chain need to cooperate with their business partners in order to meet customer’s needs and to maximize their profit by reducing cost of crude oil. However, it is a very difficult task in managing the multiple collaborations in a supply chain because there are so many firms involved in the supply chain operations with its own resources  processes also requires real-time operation and decision making across different tasks, functional areas, and organizational boundaries in order to deal with problems and uncertainties. The strategic move of focus for mass customization, quick response, and high-quality service cannot be achieved without more complex cooperation and dynamic structure of supply chains. Keywords: Cost of crude oil price, and Performance of supply chai

The Effect of Commercial Bank Lending Interest Rate on the Performance of the Residential Property Market in Kenya

The purpose of the study was to establish the effect of commercial bank lending interest rates on the performance of the residential property market in Kenya. Swelling of the residential property prices in Kenya vis a vis the commercial bank lending interest rates has ignited concerns about the sustainability of residential property market in Kenya. This study adopted a positivist philosophical attitude using causal research design. The study used secondary data from first quarter of 2005 to fourth quarter of 2018. The study conducted several test statistics and diagnostic tests in order to achieve the most optimal solution. Vector error correction model and auto-regressive distributed lag model were employed to test the hypothesis in the short run and long run respectively. The results found out that commercial bank lending interest rate had a negative effect on performance of residential properties in Kenya in both the short run and long run in line with loanable fund theory. The study has narrowed down the research gap brought about by the conflicting emprirical, theoretical and conceptual literature with regard to the effect of commercial bank lending interest rate on performance of residential property market in Kenya. To investor, the study recommends that need to negotiate for favorable loan terms especially interest rate given to them and/or their potential customers as it ultimatly influences their returns in the residential property market in Kenya both in the short run and long run

Econometric Data Analysis Affecting Performance of Supply Chain Systems in the Petroleum Industries in Kenya

The purpose of this paper was to do econometric data analysis on performance of supply chain systems in the petroleum industries in Kenya. Specifically, the objectives of the study were to establish whether there is any effect from; level of skills, information and communication technology and tendering systems and the moderating factor have an effect on supply chain systems performance. The study was conducted using a survey design. The total population of all oil companies in the 73 was covered by the study.  Several studies were carried to validate the final findings. Finally, this statistics concluded that there is need to do econometric data analysis to validate the effect of supply chain systems on performance by doing proper forecasting from the up streams to the down streams towards achieving a competitive edge in the business markets such as the petroleum industry. The econometric analysis focused on the these areas;  Information functions in order to inform management, support decision making and to identify  problem areas; Steering function in order to set targets and give directions to desired outcomes; Controlling function in order to supervise process execution. Keywords: level of skill of staffs, Information communication and technology, Tendering systems and Performanc

Effect of Debt Financing Options on Financial Performance of Firms Listed at the Nairobi Securities Exchange, Kenya

In spite of the dominance of the capital structure debate among both academic researchers and practitioners in the field of corporate finance over the last three decades, finding an optimal capital structure remains an ever-elusive gem. In particular, many contemporary firms are yet to find the optimum debt levels that maximises shareholder value. The purpose of this study was to examine the effects of debt configurations namely short-term, long-term and total debt on firm financial performance measured as return on assets and return on equity of listed firms in Kenya. The study utilizes panel econometric techniques named pooled ordinary least squares (OLS), fixed effects (FE) and random effects (RE) to analyze the effects of debt on financial performance of 40 non-financial firms listed on the Nairobi Securities Exchange between 2009 and 2015. Empirical results show that short-term, long-term and total debt have negative and statistically significant effects on returns on assets across OLS and RE. However, the debt measures have no significant effects on returns on equity across all estimation methods. These mixed empirical results partially follow both the trade-off and Modigliani and Miller’s theoretical predictions and partly contradict the very theories. Consequently, financial managers should adjust debt levels to ensure that they operate at the optimum points. On the other hand, credit institutions should only finance businesses up to the point where profitability is maximized to mitigate against default risks associated with overleveraging

Income Diversification and Intermediation Efficiency: Evidence from Deposit Taking Sacco Societies in Kenya

Research on the relationship between diversification into nontraditional income streams and firm efficiency is scanty. The study seeks to fill the gap by evaluating the relationship between diversification into non interest income and intermediation efficiency of Deposit Taking Sacco Societies (DTSs) in Kenya using a two staged methodology. In the first stage, efficiency scores are generated using Data Envelopment Analysis (DEA), corrected for bias using bootstrapping and used as dependent variable in the fixed effect regression model estimated in the second stage. A balanced panel data of 103 DTSs for a period 2011-2014 was used in the study. The results showed that there exists an inverse relationship between the ratio of noninterest income to total assets and intermediation efficiency. This implied that diversification hurts efficiency. Keywords: Data Envelopment Analysis, Deposit Taking Sacco, Diversification, Intermediation Efficiency, Noninterest income

Residential Mortgage Default Risk and Market Returns of Public Mortgage Originator Firms in Kenya

The mortgage market plays a vital role in the development of the real estate sector. The mortgage industry in Kenya has experienced tremendous growth since the year 2000. Despite this growth, Kenya’s mortgage debt to GDP ratio is still relatively low when compared to other economies like South Africa. Default risk has been revealed as one of the risks that significantly impacts on the profitability of mortgagees. However, literature is inconclusive with reference to the relationship between default risk and the market returns of mortgage firms. Consequently, this study sought to determine the extent to which residential mortgage default risk influences the market returns of publicly listed mortgage firms in Kenya. Default risk in this case was measured using the non-performing loans ratio: the ratio of non-performing residential mortgage loans to total residential mortgage loans and advances. The study adopted descriptive and quantitative forms of research design. A census was conducted on the eleven NSE listed mortgage originating firms. A panel data regression model was utilized to draw inference from the secondary data collected. Descriptive statistical findings revealed a mean of 0.0796 with a standard deviation of 0.04219 for residential mortgage default risk. Inferential statistics revealed an R square value of 0.2794 between residential mortgage default risk and market returns of publicly listed mortgage originators. In addition, there was significant effect between default risk and the market returns of public mortgage originators. Consequently, mortgagees should develop strategies of reducing nonperforming loans. For instance, mortgage firms can improve their credit rating systems

Effects of Securities Behaviour on Performance of Nairobi Securities Exchange Indices

This study aimed at establishing the Influence of investor’s behaviour on the performance of Nairobi Securities Exchange (NSE) indices. A reliable security market index should assist investors in making investment decisions but this is not always the case: investors at times invest in stock whose performance is not reflected in the indices. This study was guided by specific objectives which included: to establish the Influence of momentum effect, financial contagion, white noise effect, Security Price Volatility, and Herding Effect (all as independent variables) on performance of NSE indices as the dependent variable. This study was anchored to finance theories such as random walk theory, rational bubbles theory, smart money and noise trader’s theory, price formation and discovery theory, and information disclosure theories. The study was based on a period of 12 years starting from January 2004 to December 2015. The population of this study comprised of all the market participants at the NSE and thus a census approach was adopted where study period was done based on each specific objective. This research relied on primary data. Primary data was collected from all the market participants. In data analysis, a significance level of 5% was used on all objectives and a multiple regression model on each objective was used. The Statistical Package for Social Sciences (SPSS) was used on primary data for analysis. The findings for primary data showed all the indices to be insignificantly influenced by the securities behaviour but the overall NSE indices performance was statistically affected. Hypotheses were tested at 0.05 level of significance. The first hypothesis on momentum effect was not rejected on primary. The second hypothesis on financial contagion was rejected and.on the hypothesis of white noise effect, it was not rejected. The hypothesis of Security Price Volatility effect was not rejected while hypothesis of herding effect was rejected. It was concluded that all the indices play a complimentary role thus the need for the retention of all. NSE is highly contagious of the events that happen around it. The study recommends that future researchers should increase the respondents to also include investors. For the objective of momentum effect, the study recommends that more exchanges be included to get a finer detail. NSE and CMA should ensure that information availed to the researchers is obtained at minimal cost or for free to encourage more research into the security markets. Keywords: Momentum Effect, Financial Contagion, White Noise Effect, Share Price volality effect, Herding Effect and Nairobi Securities Exchange Indice