Browsing BBSE Research projects (2016) by Issue Date
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- ItemAssessing the optimal inflation rate for the Kenyan economy(Strathmore University, 2) Auma, LauraThis study seeks to estimate the optimal level of inflation for the Kenyan economy that is favorable for its economic growth by using time-series dataset for the period 1981 to 2014. The study adopts a model proposed by Ademola & Aiwo (2006) to examine the existence of threshold level effects in the inflation-growth relationship. The estimated model suggests a 4 percent optimal level of inflation above which inflation retards economic growth.
- ItemThe X-efficiency of insurance companies in Kenya(Strathmore University, 2015) Ngugi, Kelvin MungaiThis project seeks to determine the X-efficiencies ofboth life and non-life insurance companies in Kenya. It also establishes whether the X-efficiency ofthese insurance companies is affected by the type of business (life or non-life insurance companies), size of the finn and the profitability of the company. The data set consists of reinsurance costs, total benefits paid, administrative expenses, other expenses which altogether constitute the inputs and gross premiums are the outputs for the companies. The model to be used in this study is the Data Envelope Analysis. Using the Data Envelope analysis, the study shall be restricted to analyze the. efficiency of insurance companies by use of output-oriented Constant Return-to-Scale (CRS) . It is expected that firms operating at optimal economies of scale are expected to have the lowest costs and the resulting higher profits lead to higher market concentrations (Hao, 2004) . The results of the mean X-efficiency scores for the full sample of the large and small insurance companies was also determined. The large insurance companies recorded high mean efficiency scores compared to the small insurance companies. This implies that the larger insurance companies are operating efficiently relative to the small companies. The large insurance companies recorded a mean X-efficiency score of 69% compared to 29% for the small insurance companies. This means that the large insurance companies are operating at 69% output-oriented constant returns to scale while the small insurance companies are operating at 29% output-oriented constant returns to scale.
- ItemDeterminants that influence financial performance of microfinance institutions in Kenya: case study of Nairobi County(Strathmore University, 2015) Momanyi, Brigid AgnesAccording to (Lafourcade, Isern, Brown, & Mwangi, 2005), microfinance institutions in Sub-Saharan Africa include a broad range of diverse and geographically dispersed institutions offering financial services to low income clients, non-governmental organizations, non-bank financial institutions, cooperatives, rural banks, savings and postal financial institutions and an increasing number of commercial banks. (Hartungi, 2007) States that microfinance institutions playa vital role in the economic development of many developing countries. He further mentions that they offer loans and technical assistance in business development to low income communities in developing countries. (Hoque, 2011), suggest that microfinance institutions offer a variety of products, which include: remittances and transfers, payment services, insurance services and other ' financial products or services that are not offered by commercial banks to low income clients.
- ItemShariah-stock screening-procedure Shariah-compliant listed-equities in Kenya(Strathmore University, 2015) Baricha, Aliabdi S.Kenya vision 2030 is the country 's development blue print covering the period 2008 to 2030, it aims at transforming Kenya into an industrialized middle-income country, and among the priority sectors that will see to this vision is the creation of a vibrant and a globally competitive financial service sector. This will create jobs and promote high levels of savings so as to finance Kenya's overall investment needs and make Kenya the regional financial services hub. The capital markets has been identified as a pivotal driver of the financial service sector, along the dimensions of increasing the accessibility/ deepening of formal financial services, efficiency when it comes to boosting liquidity ratios and the ratio of bonds turnover to bond market capitalization and stability in terms of reducing the volatility in the stock exchange indices.
- ItemTax buoyancy - a comparative study between Kenya and South Africa(Strathmore University, 2015-07) Mandela, Mutokah BarrackOne of the most important measures of efficiency of any tax system in public finance is tax buoyancy which is simply the total response of tax revenue to changes in national income. Tax revenue in Africa have been relatively low on average as a percentage of GDP. Since buoyancy echoes the capacity of a tax structure to generate revenues during economic growth, in this study an attempt was made to estimate the buoyancies of income tax, value added tax, import tax, excise tax and total tax revenues in using annual data from 1972 to 2014 in the largest economies in the eastern and southern parts of Africa. It applies the error correction model to measure the short run estimate of tax buoyancy, the long run estimate of tax buoyancy and the level of convergence between the short run estimate and the long run estimate. The results suggest that the tax systems for both countries are buoyant both in the long run and short run with an average speed of adjustment between the long run and the short run estimates.
- ItemDeterminants of Commercial Bank profitability in Kenya(Strathmore University, 2015-07) Kibiwot, Kiprop CollinsThe purpose of this research is to examine the relationship between bank specific (internal) and macro-economic (external) determinants of banks profitability. This is done by using data of all the banks in Kenya from the year 2005-2010. The paper uses the method of pooled ordinary least square to investigate the impact of loans, deposits, assets, capital, GDP and inflation on two major profitability indicators i.e. Return on Assets (ROA) and Return on Equity (ROE). The empirical results have found that both the internal and external factors have a strong and 'significant impact on banks profitability. The results of the study are• valuable to both policy makers and academicians.
- ItemCorporate debt bias in NSE listed companies in Kenya - evaluation of an ACE reform on investmentments levels(Strathmore University, 2015-11) Kinyanjui, Mwangi CollinsThis study looks at the corporate debt bias resulting from debt deductibility of interest. It aims at establishing whether an Allowance for Corporate Equity (ACE) tax reform within capital intensive firms listed on the NSE specifically the effect ACE would have on investments. Estimates used show that investments would grow up to five percent if the ACE was applied from the year 2004 for the selected firms. This growth supports the premise that the tax reform would eliminate investment distortions and encourage higher levels of investment.
- ItemEffect of Working Capital Management on the profitability of Kenyan firms(Strathmore University, 2015-11) Katola, Nashon MulwaThis study seeks to provide empirical evidence about the impact of Working Capital Management (WCM) on the profitability of Kenyan listed firms. This is necessary since Working Capital Management affects both liquidity and profitability of firms and thus it is necessary for firm survival. A sample of 20 firms is chosen from five sectors of the NSE, based on market capitalization as at 2014. The study uses the fixed effects model in order to show the relationship between working capital management components and profitability and also show the effect of aggressiveness of working capital management strategies on profitability of firms listed in the Nairobi Securities Exchange. The study finds that individual working capita1 management components affect profitability but the effect is not significant to all sectors. Also, the relationship can either be negative or positive between different firms. Therefore, firm managers should employ proper working capital management strategies in order to yield the best results depending on what is best for them. An improvement in the firm's performance shall increase the firm value and eventually shall be of great importance to the shareholders of the company. Both the level of aggressiveness and conservativeness affect profitability of firms listed in the NSE. Therefore, firm managers should employ the best strategy for their firm in order to increase their profits.
- ItemAn empirical analysis of the predictability of stock returns using the Price Earnings Ratio and the Price - to - book Ratio - a case study of the Nairobi Stock Exchannge(Strathmore University, 2015-11) Nduku, Kimundi GillianThe purpose of this study is to establish whether the Return Performance of the Stocks listed on the Nairobi Stock Exchange is predictable using the Price Earnings Ratio and the Price-to-Book Ratio. The two multiples have been attested to provide a cross sectional explanation according to studies done by scholars ~n both developed, and emerging markets. The study mimics the approach used by Basu, 1977 (P /E), and Lakonishok et al, 1993 (P /B). The results found for the P /E Ratio suggest the ratio has weak predictability power of the Returns on the NSE. This is as compared to other studies in developed markets that have evidenced strong evidence on the dominance of value investing over growth investing. The P /B Ratio is however found to have conflicting effects on the returns in the NSE compared to empirical literature such that the high P /B stock portfolio evidenced a higher return over the low P /B stock portfolio.
- ItemThe relative performance of single index versus multifactor models in determining the efficient frontier in Kenya(Strathmore University, 2015-11) Wanjiku, Nduati MichelleSince the early 1950s models have been developed to aid wealth allocation in order to optimize returns. This study seeks to compare the relative performance of the single-index models and multifactor models in determining the optimal portfolio wealth allocation. The efficient frontier is determined through minimizing risk as measured by standard deviation while taking into account historical factor betas between 2001 and 2012. The study establishes that the single index model outperforms the multifactor model as it yields the highest Sharpe ratios. These findings can be attributed to the fact that the market model contains the characteristics of the macroeconomic variables in the single index model.
- ItemInferring market expectations from stock prices at the Nairobi Securities Exchange(Strathmore University, 2015-11) Wachira, Warutumo Johnsonindex returns, dividend growth and the Kenyan Treasury bill rate. Univariate and multivariate time series analysis is employed to examine the relationship. The study finds that there is no long run relationship between the index and dividends using the Johansen Cointegration test. The Vector Auto Regressive model shows that most lagged values of returns are significant in explaining movements in the index returns and past movements of the NSE 20 returns are important in inferring the future movements in the index/stock prices. Unidirectional causality from the dividend growth to the weekly returns was found which shows that movements in the dividend growth appear to lead those of the returns of the NSE 20 index. Fundamentals guide returns, but with a lag of more than seven periods. In weekly analysis, investors are driven by dividend growth after seven periods, which is the average time (in weeks) it takes between dividend announcement and dividend payout. In the monthly analysis, previous four months data is found to be useful in inferring future movements of the index especially during period of shocks. Relating this findings to the Campbell Shiller stock price decomposition, stock prices in the NSE are mainly determined by future expectations of excess returns. The study expects market expectations to be effected on the stock price, seven weeks after dividends are announced. The movements in the prices depends on the magnitude and sign of the dividend change.
- ItemThe Impact of foreign debt on economic growth in Sub - Saharan Africa(Strathmore University, 2015-11) Hamid, SakinaThis research carries out an empirical research on the impact of foreign debt on the economic growth of sub-Saharan Africa countries using cross sectional regression method suggested by Sala i-Martin and Robert Barrow. The study also incorporates the Solow growth model. Tests for both debt overhang and crowding out effect are conducted on ten Sub Saharan African countries over the period of 1980-2010. The findings show that, although there is no significant evidence of debt overhang effect, a negative impact of foreign debt through the crowding out effect is severely setting back economic growth in Sub Saharan Africa.
- ItemA comparative study of the day of the week effect in the emerging and frontier markets in Africa(Strathmore University, 2015-11) Waqo, Guyo MalichaThe study focuses on comparing the daily share prices of five major stock markets in Africa comprising of the emerging and frontier markets in Africa. The study uses daily share prices of stock market indices of Botswana, Kenya, Mauritius, Nigeria and South Africa over the period from October 20, 2014 to October 19, 2015. A regression based approach is employed to identify the existence of the day-of-the-week effect and the test of mean differences is used to compare the magnitude of the day of the week effect across the emerging and frontier markets. The results indicate that while all the African stock markets provide evidence of daily seasonality, the day-of-the-week effect is typically stronger in frontier markets. Specifically, a negative effect is observed for Monday while a positive effect occurs on Friday. The low level of observed daily seasonality in the stock markets of South Africa implies that the emerging market is weak form efficient, supporting the notion that the stock market development is accompanied by efficiency. The results have useful implications for international portfolio diversification. This may be of particular interest for the stock market authorities and the international investor.
- ItemAnalysis of the macroeconomic determinants of a firm's capital structure(Strathmore University, 2015-11) Waweru, WangechiThis study analyses the relationship between macroeconomic factors and the capital structure of 55 listed companies in Kenya. The questions answered are what is the effect of macroeconomic conditions on capital structure and is there a difference in effects across segments? Panel data analysis is applied and a random effects model is used for the sample period 2004-2014. Fisher type unit root test is used to test for panel data stationarity. The segments analyzed in the research include; agricultural sector, manufacturing & allied, investment, banking, insurance, construction & allied, energy & petroleum, automobiles & accessories and commercial & services. The leverage ratios tested were debt to equity and total debt ratio. The independent variables tested were GDP, inflation, interest rates, exchange rates, asset tangibility and size. The findings of the study indicate that the macroeconomic determinants do not have an effect on the capital structure decisions of the listed firms as a whole. Results of the analysis of the different segments concluded that interest rate and inflation had an effect on the agricultural companies' capital structure decisions while interest rate, inflation and exchange rate had an effect on the energy and petroleum industries capital structure decisions. In conclusion none of the macroeconomic determinants affect the industry as a whole but interest rate, inflation and exchange rate are the macroeconomic determinants that are significant across the segments.
- ItemThe dynamic relationship between stock prices and exchange rates - A case of Kenya(Strathmore University, 2015-11) Mumbe, Kaseka AnitaThis study investigates the price t1uctuations and volatility spillover effects as well as the relationship between the stock market and the currency market in Kenya. The study developed long run and short run models for the exchange rate and stock price index with data ranging from between January 2004 to December 2014. The Data was obtained from the Nairobi Stock Exchange for the stock prices and the US DIKES exchange rate from the Central Bank of Kenya website. The study uses the Vector error correction model to determine the short run relationship 'and the significant price transmission effects' between the markets whereas the EGARCH' model is used to determine the volatility effects as well as the conditional variances of each of the variables. The study finds that there is no causal relationship between the stock market and exchange rate market; however it finds that there is significant volatility and price spillover effects from the foreign exchange market to the stock market and vice versa. This dynamic relationship opens up avenues for further research into other factors that may affect these two variables such as interest rates, which may be used to better explain the transmission of price spillovers between the currency and stock markets.
- ItemImpact of income and geographical diversification on the the financial performance of Commercial Banks in Kenya(Strathmore University, 2015-11) Wanjiru, Kwena FridaSo as to better withstand the rapid revolution in the banking sector, characterized by incessant changes in technology, liberalization and stiff competition, commercial banks have resorted to diversifying away from traditional lending activities into new risker areas alongside employing newer distribution channels. The current study analyses the impact of this income and geographical diversification on the financial performance of forty commercial banks in Kenya between 2008 and 20 I 4. Fixed effects and random effects panel analysis frameworks are employed to this end. Performance is measured as Return on' Asset (ROA) and Return on Hirschman Index (Hl-11). The study finds a negative relationship between both income and geographical diversification when ROA is used as a measure of performance, indicating no benefit in diversification. However, using ROE as a measure of performance reveals a positive relationship between both income and geographical diversification and firm performance. The mixed results could be attributed to the fact that net interest income, non-interest income and profit moderately moved together over the period of this study which indicates that they responded to the same economic shocks in a similar manner. In addition, the Kenyan banking industry is dominated by a few large banks with small and medium banks recording dismal ROA despite the increasing diversification efforts. Growth of these bank could significantly improve the results as ROA would improve hence aiding commercial banks to reap the benefits of diversification.
- ItemThe impact of financial leverage on a firm's investment decisions(Strathmore University, 2015-11) Koech, Brian KipkiruiThis paper studies the impact of leverage on a firm's investment. The impact is measured for both high and low growth firms. The evidence is provided by use of the listed companies in the Construction & Allied and Commercial & Services segments of the Nairobi Securities Exchange (NSE). The approach involves structural estimation and in particular the Simulated Method of Moments (SMM). It furthers the prior research that has been done. However, the results are not consistent with what was concluded. In this case the effect of leverage on investment is positive.
- ItemStock market development and economic growth - evidence from Kenya(Strathmore University, 2015-11) Macharia, LisaThe main purpose of this study was to explore the relationship between the stock market development and economic growth by establishing a causal link between them using annual time series data for the period 1990 to 2014. The study utilized econometric techniques such as Unit Root Tests, Vector Auto-regressive model and Granger Causality Tests. The empirical results did not show a direct link between economic growth and the stock market. However, they showed that foreign direct investment granger causes the stock market variables and therefore has an impact on the growth in size and liquidity of the Kenyan stock market.
- ItemThe effect of an IPO on the share performance of industry rivals - an event study analysis of the Nairobi Securities Exchange(Strathmore University, 2015-11) Waruru, Itugi BrianThe research project analyzes the impact an Initial Public Offering has on the share performance of industry rivals. Access to funds is one of the key processes of firms and an IPO is one of the channels that firms seeking better growth opportunities will pursue. In regard to the growing market of the Kenyan industry, more firms are expected to list at the Nairobi Securities Exchange and it will be of interest to study how an IPO will impact the share performance of an industry cluster. This research uses an event study approach to analyze the share performance of industry incumbents for the time period 2004 to 2014. The research finds that an, IPO has significant. Impact on the incumbents share performance and the significant effect is either negative or positive especially when the listing company offers similar services. This research also finds evidence that there is an insignificant impact when the listing company offers totally different services in comparison to the incumbents. The data is collected from the NSE as well as the websites of companies that have undergone an IPO.
- ItemAnalyzing the influence of twitter hashtags on the movement of the stock market(Strathmore University, 2015-11) Muthoni, Warimah JoyThis paper evaluates the existence of a relationship between a well-known micro-blogging platform, Twitter and the financial market. We particularly consider in a period of six months the daily collection of trending twitter hash tags and the daily movement of the NSE 20 share index Granger causality, Correlation tests and logistic regression tests were used to examine the relationship. We find low Pearson correlation between the corresponding time series over the time period. We also found that none of the variables granger causes the other. We found no relationship between the sentiment as expressed from twitter and the movement of the stock market. As a series of other papers have already shown, there is a signal worth investigating which connects social media and market behavior. This opens the way, if not to forecasting, then at least to "now-casting" financial markets. This study is open to further and more advanced research using a longer time period as well and to employ sentiment classification techniques.