Impact of Government Debt on Economic Growth in Kenya: A Critical Literature Review

The study examined the impact of government debt on economic growth through extensive review of relevant theoretical and empirical literature. Governments borrow to cover budget deficits. The debt is obtained either from the domestic market or from external sources. Government debt by Greece proved to be bad for the economy while government debt by USA which has the highest debt in the world proved to be manageable. This led to the need to examine the impact of government debt on economic growth in Kenya. The major theories examined included Adolph Wagner’s law of increasing state activity, the debt overhang theory, crowding out theory and the Ricardian equivalence theory. The main objective of the critical literature review was to review the literature done on the impact of government debt on economic growth while the specific objectives were to examine the impact of government debt on economic growth, to investigate the effects of macroeconomic variables on the relationship between government debt and economic growth, to establish the effects of regulatory reforms on the relationship between government debt and economic growth, and to review the joint effect of macroeconomic variables and regulatory reforms on government debt and economic growth. The majority of the findings from the literature reviewed on government debt indicated that there was an impact of government debt on economic growth; some showed a positive economic growth while others showed a negative economic growth

THE EFFECT OF CORPORATE GOVERNANCE AND CAPITAL STRUCTURE ON PERFORMANCE OF FIRMS LISTED AT THE EAST AFRICAN COMMUNITY SECURITIES EXCHANGE

The purpose of the study was to establish the effect of corporate governance and capital structure on performance of firms listed at the East African community securities exchange. Specifically the study sought to establish the effect of capital structure on the relationship between corporate governance and firm performance of listed companies in Kenya, Tanzania, Uganda, Rwanda and Burundi. Based on the agency theory this study builds a comprehensive framework to answer the research question on whether good corporate governance affects firms performance by integrating capital structure into the governance model. A census survey was carried out on all the 98 listed companies between 2009 and 2013 in Nairobi Securities Exchange, Uganda Securities Exchange, Dar es Salaam Stock Exchange and Rwanda Stock Exchange. Out of the 98 firms that were targeted, 56 were analyzed constituting 57%. The findings revealed that the there was a significant positive relationship between corporate governance and firm performance. The study also confirmed that there is a positive significant intervening effect of capital structure (leverage) on the relationship between corporate governance and firm performance. From a theoretical perspective, this study not only explains how corporate governance affects firm performance, but also uncovers the importance of capital structure in a corporate governance system

THE EFFECT OF CORPORATE GOVERNANCE AND CAPITAL STRUCTURE ON PERFORMANCE OF FIRMS LISTED AT THE EAST AFRICAN COMMUNITY SECURITIES EXCHANGE

The purpose of the study was to establish the effect of corporate governance and capital structure on performance of firms listed at the East African community securities exchange. Specifically the study sought to establish the effect of capital structure on the relationship between corporate governance and firm performance of listed companies in Kenya, Tanzania, Uganda, Rwanda and Burundi. Based on the agency theory this study builds a comprehensive framework to answer the research question on whether good corporate governance affects firms performance by integrating capital structure into the governance model. A census survey was carried out on all the 98 listed companies between 2009 and 2013 in Nairobi Securities Exchange, Uganda Securities Exchange, Dar es Salaam Stock Exchange and Rwanda Stock Exchange. Out of the 98 firms that were targeted, 56 were analyzed constituting 57%. The findings revealed that the there was a significant positive relationship between corporate governance and firm performance. The study also confirmed that there is a positive significant intervening effect of capital structure (leverage) on the relationship between corporate governance and firm performance. From a theoretical perspective, this study not only explains how corporate governance affects firm performance, but also uncovers the importance of capital structure in a corporate governance system

Determinants of Private Finance Initiative for Project Financing; A Study of National Road Construction Projects in Kenya

Purpose – The purpose of the study was to assess the factors determining the financing of private finance initiative projects specifically road construction projects in Kenya Methodology - Across-section survey research design was used in the study. Questionnaire was used as instrument for data collection. Quantitative data were analyzed using both inferential and descriptive statistics while the qualitative data were analyzed thematically. Inferential statistics such as regression and correlation analysis were used in analyzing the association between the study variables. Pie charts, bar graphs and tables were then used to present the analyzed data. Findings – The study found that 69.3% of the variations on financing for private finance initiatives can be explained by project characteristics, government attributes, political environment and economic environment. This is also an indication that the variables tested were very strong determinants of the financing of the road projects in Kenya under the private finance initiativesprivate finance initiatives. Aspects of project characteristics such as cost, scope and size of the project (Mean 4.55) and project technical feasibility & maintenance (Mean 4.09) were found influence the project financing of road projects to a very large extent. The study further found that different aspect government attributes such as cost of the loan (Mean 4.73), tax policy (Mean 4.27) stable macroeconomic conditions (Mean 4.27), favorable legal framework (mean 4.18), project development objectives (PDOs) (Mean 4.18) and sound economic policy (4.09) were found to influence financing of road projects to a very large extent. The findings finally revealed that stability of political environment influenced the financing of road project financing to a very large extent (Mean 4.73). Implications - The findings of the study will contribute to the formulation of borrowing policies. Government bodies such as the treasury can use the findings of the study to come up with policies regulating borrowing for private finance initiatives in Kenya. For example, the findings can be used to regulate over borrowing to finance road projects at the expense of other development areas. The study will also contribute to the existing theories on private finance initiative. Theories such as public choice theory focusing on political decisions which are not in line with public interest may not fully explain the determinants of financing of private finance initiatives. This study found that other factors such as the project characteristics and economic environment influences financing of private finance initiatives Value - By highlighting on the determinants of project financing for private finance initiatives projects, governments and policy makers will be able to come up with policies aimed at ensuring favorable environment for the implementation of road projects.  Furthermore, government will be at a position to know the factors determining their eligibility for funds for financing particular projects before seeking for the finances. The study will also be of importance to the Private Finance Initiative partners such as World Bank, African Development Bank (ADB), Trade Mark East Africa Organization (TMEA) and Japan International Cooperation Agency (JICA). By highlighting on the determinants of project financing for private finance initiative projects, the partners will be at a position to make more informed decisions when determining the projects to fund

The Effect of Capital Structure on Financial Performance with Firm Size as a Moderating Variable of Non-Financial Firms Listed at the Nairobi Securities Exchange

This paper examines the effect of capital structure on the financial performance of the non-financial firms listed at the Nairobi Securities Exchange and how this relationship is moderated by firm size. In addition, the paper evaluates the existence of equilibrium and disequilibrium relationship among the variables. The study analyzed unbalanced panel data sourced from across 53 non-financial firms listed at the Nairobi Securities Exchange which covers the period from 2010 to 2017. Total debt to total equity, total equity to total assets, and total debt to total assets were used for assessing capital structure of the listed non-financial firms. Firm size was measured using natural logarithm of total sales. Financial performance attribute was measured by Tobin’s Q. Data was analyzed using descriptive statistics, multiple and simple regression analysis. Regression analysis was used to ascertain the direction and magnitude of the relationships. The study revealed that leverage had a significant positive effect on the financial performance of the NSE listed non-financial firms. Furthermore, firm size has a positive moderating effect on the relationship between capital structure and financial performance. The study concludes that firms should strive to increase their leverage since it has a statistically significant positive effect on financial performance of the nonfinancial firms listed on the NSE. The study further concludes that firms should strive to grow their firm size by increasing their total sales. This is because it has a statistically significant positive effect on the financial performance of NSE listed non-financial firms

INFLUENCE OF MACROECONOMIC FACTORS ON FIRM CAPITAL DECISIONS: THE CASE OF NONFINANCIAL FIRMS IN KENYA

Purpose: The study investigates the relationship between macroeconomic variables and capital structure decisions of nonfinancial firms listed at the Nairobi Securities Exchange, in Kenya. Methodology: The study uses an unbalanced secondary panel data consisting of 36 nonfinancial firms listed at the Nairobi Securities Exchange (NSE) for the period 2015 to 2019 as at December 31st 2019. The sample selection was guided by data availability. The sectors excluded consisted of firms in banking, insurance, equity investment and real estate, including investment trusts. These exclusions were motivated by regulatory differences and for the ease of comparability of findings. Findings: The relationship between macroeconomic variables capital structure decision was found to be positive. This means that macroeconomic variables are determinant of capital structure decisions which supports the notion of trade-off theory and Pecking order theory as they advocate that firms should use debt to finance their operations. Implications: The results of this study have two major policy implications. First, nonfinancial firms in Kenya could significantly improve their performance if there is established utilisation of debt. Second, whilst policies aimed at popularising external finance to firms could have significant positive impacts on capital structure, the benefits of such policies would be much better realised if harmonised with efficient capital market for firms to raise debt capital with favourable interest. JEL: E02; E44; G10 Article visualizations

EFFECTS OF ACCESS TO CREDIT ON FINANCIAL PERFORMANCE OF SMALL AND MEDUIM ENTERPRISES IN NAIROBI COUNTY

Purpose: SMEs have been recognized as being great contributors to the Kenyan economy offering both employment and a platform for innovative ideas. They form a larger percentage of the businesses that operate in Kenya as compared to their counterpart, the large companies. They are however faced with many constraints that hinder their performance and consequently their growth. One of the main constraints that have been highlighted over the years is the financial constraint. The need for finance is of paramount importance for the success of any firm, be it big or small. The purpose of this research was to investigate the effect of credit access on financial performance of SMEs in Nairobi County. Methodology: The literature explored in this research highlight three main factors, namely firm size, loan amounts, access to credit and financial performance. These form the independent variables in the theoretical framework that influence the dependent variable, that is, access to external funding. The analysis involves primary data obtained through questionnaire and interviews and secondary data from journals, books and internet. The data covered a period of five years ranging from the year 2012 to 2016. Findings: The regression model has an R of 0.724 which indicates a strong positive relationship between the variables. The coefficient of determination, R square indicates how well data fits in the statistical model; how successful the fit is in explaining the variation of the data. In this model, 52.4% of the variations in the dependent variable are explained by the independent variables. Implications: This report contributes as a wakeup call to the financial system to be more and more SMEs’ sensitive and offer financial services that are all inclusive. The financing gap, in the credit market, that exists between large and small companies need to be abridged. This can be achieved by creating an enabling environment for SME, formulating regulatory framework that is SMEs friendly, segmenting NSE for SMEs’ listing. SMEs are also called up to keep good financial reports and to form linkages or associations to ease the burden of accessing funds. Value: This research is motivated by the increasing importance in Kenya’s economy of SMEs, and the continuing constraints they face in their activities. The development of SMEs has been identified as one of the strategies in the Kenyan economic blueprint of vision 2030 as one of the pillars for addressing key economic issues for generating industrialization, employment generation and poverty reduction in Kenya and in working towards a sustainable economy that achieves the Millennium Development Goals like solving the problem of unemployment. The government in its goal through Economic Recovery Strategy (ERS) is employing all players to make this dream come true. The research is also resourceful for prospective entrepreneurs wishing to start a small business. It is also a wakeup call on the lending institutions to work up a strategy that would have a wider financial inclusion.

The Effect of Audit Committees on the Performance of County Governments in Kenya

Purpose - The chief objective of this management research study was to determine the effect of county audit committees on the performance of county governments in Kenya. Methodology - This management research paper was based on a conceptual framework that elaborates this relationship theoretically based on the exploratory empirical studies. This management research paper uses three theories as the anchoring theories based on the research variables of county audit committees and performance. Thus, this research paper built an all-inclusive structure that answers the research question of whether county audit committees had an effect on the county government performance in Kenya. The study uses a purposive judgement sampling model. The target population was all 47 county governments in Kenya and the county audit committees was the preferred unit of analysis. Hypotheses were tested using regression analysis and Pearson’s Product Moment Correlation analysis. Descriptive statistics were computed for the study objectives on the main characteristics of the study variables. Findings - The findings revealed that there was a strong relationship between county audit committees and county government performance. Implications - The findings of this study give managers and policy makers in the county government an in-depth understanding of the best practices in the management of public sector establishments by the use of county audit committees to promote their performance. Value - This study significantly contributes to the understanding and use of theories and practice of the correlation between county audit committees and performance of organizations. The key terms are; audit committees, county and performance.

The Influence of Ownership Concentration on Firm Financial Decisions and Value: Evidence from Nairobi Securities Exchange

This study paper examines the influence of ownership concentration and firm financial decisions on firm value for firms listed on the Nairobi securities exchange. This study is supported by theoretical literature under the signaling hypothesis, institutional monitoring hypothesis, and agency theory. The study used longitudinal data for listed firms during the ten years (2008- 2017) and regression analysis was used to study the nature and extent of the relationship. The target population was sixty-eight firms that traded equity securities during the period. Empirical results reveal that ownership concentration has no significant positive effect on firm value, but dividend payment significantly influences firm value, and the capital structure only compliments other corporate governance processes in a firm. Firms listed on the Nairobi Securities Exchange have a high level of ownership concentration and this suggests, contrary to the shareholder monitoring hypothesis, large shareholders could be entrenched and, unless other complementary corporate mechanisms are present, large shareholders may not act in the best interest of minority shareholders.The youthful spirit of students to become entrepreneurs is apparent to the naked eye. However, the general objective of this research was to analyze the entrepreneurial attitude of male students from the Tecnológico Nacional de México campus, Tepeaca. One hundred and seventy-two male students were surveyed. The questionnaire was designed and validated by experts in the area. The validation was carried out by a new method; This consists of applying a Pearson factorial analysis for linear correlations and chi-square for nonlinear associations. Five postulates are applied to debug and validate each item. The items are taken as factors or independent variables to contrast the working hypotheses. The sampling was random. The results matrix obtained after applying Pearson's correlation yielded three correlations above 0.7. With these correlations, six linear hypotheses were validated. Only eight chi-squarevalidated nonlinear hypotheses were selected due to the limited space of a scientific article. In general, 400 working hypotheses were designed in the order of 20 items taken in two to two. It is concluded that the surveyed students have extensive knowledge of entrepreneurship. They are prepared for innovation, creation, and success in the companies they own and the companies where they provide their services

Demographic Diversity in Top Management Team and Financial Reporting Quality in Commercial State Corporations in Kenya

The purpose of the paper is to examine the effect of demographic diversity in Top Management Team (TMT) on financial reporting quality in commercial state corporations. The study adopted correlational and longitudinal research design and stepwise regression analysis of FRQ variables on a set of demographic diversity variables in TMT. The findings provide considerable evidence to suggest that TMT demographic diversity are associated with financial reporting quality measured by fundamental qualitative characteristics of accounting information, earnings management, timeliness in reporting and disclosure quality. The research implication is that; in general, demographic diversity in TMT-gender, age, education, tenure and functional background may have important implication for financial reporting quality under different measures. The value of this paper is to extend Prior research by addressing the potential effects of TMT demographic diversity on FRQ. The findings reported in this paper provide novel insight to empirical financial reporting quality literature in commercial state corporations