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

INTERVENING EFFECT OF INTERNATIONAL COMPETIVENESS ON THE RELATIONSHIP BETWEEN TAX INCENTIVES AND FOREIGN DIRECT INVESTMENT AMONG THE EAST AFRICA COMMUNITY PARTNER STATES

Countries around the world employ different efforts aimed at attracting more FDI, top most being tax incentives. Appropriate fiscal policy framework establishes tax incentive that improves country’s investment climate. However, tax incentives may at times not adequately compensate for poor investment climate in developing countries resulting from poor infrastructure, lack of trade openness, weak judicial system, small market size and most importantly political instability. Therefore, this study sought to determine the moderating effect of investment climate on the relationship between tax incentives and FDI among the East Africa Community partner states. The study was carried out using data relating to the five states in the East Africa Community: Tanzania, Rwanda, Kenya, Burundi, and Uganda.   Secondary data covering a period of 15 years from 2002 to 2016 was used. The results revealed that tax holiday and the period of losses carried forward had an insignificant and positive relationship with FDI inflows but investment allowances had an insignificant negative relation with FDI inflows. The study revealed that consumer prices and tax holiday had a positive and statistically insignificant relationship with FDI and that investment allowances and the period of losses carried forward had a negative and statistically insignificant relationship. The findings also revealed that tax holiday and export growth had a negative and statistically significant relationship while investment allowances and the period of losses carried forward and export growth had a negative and insignificant relationship. The findings further revealed that consumer prices had a statistically insignificant positive relationship with FDI inflows while export growth had negative and statistically insignificant relationship with FDI. Finally, the study found that tax holiday, consumer prices and export growth had negative and statistically insignificant relationship with FDI while investment allowances and the period of losses carried forward had a positive and statistically insignificant relation with FDI

TAX INCENTIVES AND FOREIGN DIRECT INVESTMENT ELATIONSHIP IN THE EAST AFRICA COMMUNITY PARTNER STATES

The relationship between tax incentives and Foreign Direct Investments (FDI) isone of the unresolved issues in public finance. The existing studies on theeffectiveness of tax incentives in attracting foreign investors differ depending onjurisdiction of research and the methodological approach employed. This studywas to establish the relationship between tax incentives and FDI in East AfricaCommunity Partner States. A panel descriptive study design was used todetermine the relationship between tax incentives and foreign direct investment inEast Africa Community Partner States, which included Tanzania, Rwanda,Kenya, Burundi, and Uganda. The study used panel secondary data, whichcovered a period of 16 years from 2002 to 2017. The study revealed that taxholidays and period of losses carried forward did not have statistically significantinfluence on FDI inflow. However, investment allowances had a positivestatistically significance influence on and FDI inflow in EAC. The studyconcluded that the investment allowance had a significant influence on FDIinflows among the East African community partner states. The studyrecommended that the leadership of East Africa community partner states shouldencourage use of investment allowances to attract FDI. The study alsorecommended that tax holidays and period of losses carried forward should not beused as a means of attracting FDI since the empirical evidences shows that the twoare not significant in attracting FDI

The Effect of External Public Debt Financing on the Economic Growth of East African Community Countries

Purpose - This paper sought to establish the effect of external debt financing on the economic growth of East African community countries. Methodology - The study was modelled as a descriptive survey. A data collection sheet was used to collect secondary data from the population of the 6 member states of East Africa Community over a period from 2000 to 2017. The data was examined using descriptive, correlation and regression analysis. Findings - The study established that 65.9% change in economic growth of Kenya is explained by its external debt, (p=0.000), 55.6% change in economic growth of Uganda is explained by its external debts (p= 0.000),   76.1% change in economic growth of Tanzania is explained by the level of external debts (p=000), 83.1% change in economic growth of Rwanda  is explained by its external debt level (p= 0.000) and that  59.2% change in economic growth of Burundi is explained by its external debt (p= 0.000). On overall, 64.5% change in economic growth in East Africa Community is explained by the external debts of the member states. The study concludes that external debt significantly influenced economic growth of Kenya as a country. External debts significantly influenced economic growth of Uganda, Tanzania, Rwanda and Burundi. In general, external debts had most influence on economic growth of Rwanda followed by Tanzania, Kenya, Burundi and lastly Uganda.   On overall, a significant change in economic growth in East Africa Community is explained by the external debts of the member states. External debt significantly influenced economic growth of the EAC. Implications - Public debts play a crucial role in financing of deficit budget. However, too much debt may become unsustainable for the country since revenue will spend on repayment of the interest and the principal amount at the expense of encouraging investment and therefore economic growth. Too much external debts results into crowding out effect as it deters local and foreign investors from investing and this adversely harms the economy. Value - The study will act as a guide to the National treasuries of member states of EAC in order to consider increasing the level of their external debts based on their ability to service and the overall capacity. Member countries of EAC should have clearly established threshold of a rise in level of external beyond which an alarm should be raised to signal danger. The member countries of EAC should borrow external debts for the purpose of economic growth. However, borrowing the debt with the aim of repaying another debt or for recurrent expenditure would not significantly influence economic growth of a country. Key Words: external public debt, economic growth, East Africa communit

EFFECTS OF CAPITAL FLOWS ON ECONOMIC GROWTH IN KENYA

Purpose -This study investigated the immediate and lagged effects of the various forms of capital flows - FDI flows, portfolio flows and “Other investments capital flows” (which mainly represents corporate, financial institutions and general government borrowings as well as remittances from the diaspora) - on economic growth in Kenya over a 30 year period from 1984 to 2014.   Methodology – The study adopted a quantitative research design in the form of an econometric model known as Auto Regressive Distributed Lag Model (ARDLM). Findings -FDI and portfolio investments flows have a negative impact on the GDP growth rate and that their impact is not statistically significant.However, other investments flows, which mainly represent corporate, financial institutions, general government borrowings and remittances from the diaspora, have a positive impact on GDP growth rate and the impact is statistically significant.Based  on the  study findings, it can  be inferred  that a  significant slowdown or a reversal in capital flows in form of “Other investments capital flows” into Kenya result into significant slowdown in economic growth in the country. Implications -Policy makers may lay much emphasis on attracting portfolio investment flows and “Other investments capital flows”, while investors and firms should consider the upside opportunities that may be created by increase in other investments capital flows and the downside risks that could results from a significant slowdown or a reversal in these forms of capital flows into the country

Effect of Selected Macroeconomic Variables on Performance of Securities Exchanges in the East African Community

Abstract Purpose - The goal of this paper was to investigate the impact of selected macroeconomic factors on the performance of securities exchanges in East African Community.   Methodology - Descriptive research design was embraced as study involves inspiring conclusions. This study relied on secondary data. The period of the study was from 2013 to 2017   Findings - This research found out that the coefficient of GDP was 0.001 meaning that GDP positively influences market capitalization. Inflation rate positively affects the market capitalization, this is clear from the coefficient value of 0.235. Money supply impacts negatively on market capitalization since its coefficient was-0.004. Interest rates influences market capitalization positively since the value of coefficient was 0.129. Exchange rates influences market capitalization negatively since the value of coefficient was -0.338. In general, macroeconomic variables affect the performance of securities exchanges in East Africa Community. The five independent variables analyzed were able to explain their effect on the market capitalization up to 48.9% as shown by adjusted R square. This implies that they input 48.9% on the market capitalization with the rest contributed by the factors not studied. The model was fit.   Implications - Little attention has been paid to understanding the impacts of macro-economic factors on performance of securities exchanges. Understanding such effects is central to the resourceful working of the financial system in totality and for overall economic performance. The study recommends that policy makers should formulate policies geared towards stabilizing inflation, exchange and interest rates which will in turn promote foreign trade in the region   Value - This study is of pronounced significance to researchers, academicians, companies and policy makers as it gives important insights on how the macroeconomic variables affect the performance of the stock exchanges. It acts as a basis for making investment decisions by investors and policy makers can design appropriate stabilization policies in the stock markets. 1MSc. Finance, Corporate & Treasury Analyst, KCB Bank, [email protected] 2Lecturer University of Nairobi, School of Business, Department of Finance and Accounting and a Certified Investment and Financial Analyst (CIFA), [email protected]

FINANCING STRATEGIES, MACROECONOMIC FACTORS, INSTITUTIONAL QUALITY AND THE ACHIEVEMENT OF SUSTAINABLE DEVELOPMENT GOALS: A CRITICAL LITERATURE REVIEW

Purpose of the Study - The world through United Nations leadership has defined the post-2015 development agenda comprising of 17 goals, 169 targets and 230 global indicators, cutting across social, economic and environmental pillars, which when attained by all nations by the year 2030, will create the future the world needs. The purpose of this study is to critically review the existing literature on the effects of financing strategies, macroeconomic factors and institutional quality on the achievement of the development goals. Findings - Africa has embraced the Sustainable Development Goals framework and relies on domestic finances, foreign direct investment, external debt, trade, official development assistance, financial and technical cooperation to fund various development programs. The implementation of the post-2015 sustainable development goals has shifted from global to national and local perspective. Most of the existing studies focused on the eight millennium development goals with a global perspective. As a consequence, the significance and effectiveness of the diverse and conflicting policy recommendations founded on Millennium Development Goals studies and their contribution to the achievement of the post-2015 SDGs remains doubtful. This paper concludes that Africa in particular, will require more than identification of appropriate financing strategies in order to achieve the target development goals. The success of the financing strategies on the achievement of development goals will depend on how African nations address macroeconomic factors and institutional quality factors in its quest to achieve the sustainable development goals by year 2030. Implications – Africa will need policy intervention to address institutional quality factors such as political stability, corruption levels, financial market developments and human capital development. These factors affect the direction and or strength of the relationship between the financing strategies and development goals. In additional Africa nations need to address the macroeconomic factors such as the employment levels, income levels, inflation rates and economic growth. The microeconomic factors emerge to explain the impact of the financing strategies on the achievement of the development goals. Value of the study - the study identifies and document existing knowledge gaps and proposes study approaches to address the gap thereby enriching existing body of knowledge. In addition, this study provide in-depth analysis that will inform the understanding of the direction and impact of the various financing strategies on the achievement of development goals, which can form the basis for the policy review.

The Effect of Domestic Public Debt on Financial Market Development in The East African Community

Purpose -- The focus of this study was to investigate the relationship between public debt and financial market development in the East African Community Countries. Methodology – The study adopted a descriptive study and used secondary data collected from the National Treasury, Central Bank of Kenya and the Kenya National Bureau of Statistics. The study period was between the financial years 2012 - 2016. The data was analyzed using descriptive and multiple regression analysis to test the relationship between Domestic Public Debt and Financial Market Development in East African Community Countries. Findings – The results of the study found a negative relationship between domestic debt and financial markets development. Furthermore, there was a weak relationship between inflation rate and financial markets development. The study also revealed that there was a high variation on domestic debts due to various policies of debt management, Political instability, external debts and grants received from foreign donors, in the various countries in EAC community. Implications – Most countries depend on external borrowings for their development projects and minimal domestic borrowings are acquired from the domestic market owing to the fact that domestic debt is has high interest rates when compared to the external debt which is acquired mainly on a concessional term, therefore it can be expensive to maintain. Domestic debt should be reduced by use of privatization programs, grants from donors. The government should, therefore, develop a framework to monitor and manage domestic public debt since it is growing at a high rate, reforms on private investments in Treasury bonds and treasury bills and commercial papers should be encouraged since it does not involve foreign currencies that have higher rate of interest. Value – The study will be of great impact to the financial market sectors stakeholders would get a clear understanding of the major role they play in assisting the development of the country, how the domestic debt increases financial market development and reduces external public debt that tends to affect the country’s interest rates. The government of Kenya being the main beneficiary of the domestic Public debt will clearly see and align their internal debt borrowings from the financial markets institutions to promote development in the financial markets. The investors in the Bond Markets and Financial Institutions will be informed of the factors that lead to Government issuance of Treasury Bonds and Treasury Bills to the market and the impact it has on financial markets development and the economy at large

The Effect of Macro-economic Variables on Real Estate Development in Kenya

Purpose – The development of real estate sector in any context is highly affected by several economic factors. This study sought to establish the effects of macroeconomic factors on real estate sector development in Kenya. Independent variables studied are balance of payment, government expenditure, external government debt, foreign direct investments, taxation, interest rate, inflation rates, unemployment, capital market development and exchange rates.   Methodology – Development of the real estate sector was measured by quarterly Hass Consult Property index. Secondary data was collected for a period of 10 years (January 2008 to December 2017) on a quarterly basis. The study employed a descriptive cross-sectional research design and a multiple linear regression model was used to analyze the relationship between the variables.   Findings - The results of the study produced R-square value of 0.840 which means that about 84 percent of the changes in growth of the real estate sector in Kenya can be explained by the ten selected independent variables while 16 percent in the variation was associated with other factors not covered in this research. The study also found that the independent variables had a strong correlation with growth of the real estate sector. The results further revealed that individually only balance of payment and unemployment rate are statistically significant determinants of real estate development in Kenya.   Implications - Adequate measures should be put into place to improve and develop the real estate sector in Kenya by reducing both the prevailing unemployment rate levels and current account deficit.   Value – The study will be used as a guide in formulating policies by the government and any other institution involved in policy formulation for the real estate sector.   Key Words: macro-economic variables, Real Estate Development in Keny

The Effect of Selected Macro-economic Variables on Exchange Rates in Kenya

Purpose – This paper sought to establish the effect of selected macro-economic variables on exchange rates in Kenya. The selected macro-economic variables for this study were interest rates, inflation rates and trade flows. Methodology – The study was modeled as a descriptive survey. A data collection sheet was used to collect secondary data from the published bulletin and other publications by Central Bank of Kenya and Kenya National Bureau of Statistics for a period of ten years between 2006 and 2015. The data was examined using descriptive, correlation and regression analyses. Findings - Results of the study showed that interest rate had a positive correlation coefficient of 0.446 with exchange rate, Inflation rate and exchange rate had a correlation coefficient of negative 0.395 while the Level of aggregation of trade flows had a correlation coefficient of positive 0.829 to the exchange rate. The value of R square was 0.745, a discovery that 74.5 percent of the deviations in exchange rates in Kenya occurred due to changes in interest rate, inflation rate and trade flows at 95 percent confidence level. The significance value obtained was less than p=0.05 implying that the model was statistically significant in predicting how the macro economic variables of interest rate, inflation rate and trade flows affect exchange rates in Kenya. Implications - The Kenyan shilling has been depreciating in value over the years implying a weakening of its purchasing power in the international markets. Policy makers should come up with policies that will contribute to reversing this trend. Managing the prevailing levels of inflation, interest rates and trade flows will be key as they have been found to significantly affect exchange rates. Value - The study will act as a guide to various banking sector policymakers key being the Central Bank of Kenya and the Treasury in formulation of the policies which will manage exchange rates and spur growth and profitability in this sector. The monetary policy decision makers can innovatively formulate foreign exchange strategies that ensure that the exchange rate in the financial market at any time do not negate investments in the economy. Key Words: selected macro-economic variables, exchange rates in Keny