BBSE Research Projects (2020)

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Browsing BBSE Research Projects (2020) by Title

Now showing 1 - 8 of 8
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    Effects of macroeconomic shocks on banking sector loan quality in Kenya
    (Strathmore University, 2020) Shammah, Wema Oduor
    This a paper uses two approaches to analyse the link between loan quality and macroeconomic performance. First evaluating the interaction between different macroeconomic factors using panel regressions second applying a panel vector autoregressive model in modelling the same macro-financial interactions. Using panel datafrom banks 31 banks spanning between 2001 to 2018, results show that money supply is the main macro-economic factor that influences loan quality in Kenya. Impulse response fimctions are used to how that macro-economic shocks take time reduce or increase loan quality in Kenya.
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    Financing preferences of micro, small and medium enterprises in Kenya: A discrete choice experiment
    (Strathmore University, 2020) Kimani, Stephanie Muthoni
    MSMEs are universally acknowledged as key drivers of economic growth, due to their significant contribution to production, employment and innovation (Keskin, Senturk, Sungur & Kiris, 2010). However, despite their contribution to economic development, studies found that small firms faced more financial constraints as compared to large finns (Beck, 2007). As a result, governments and international bodies such as the World Bank prioritized implementation of policies and initiatives to boost SME growth. On the other hand, private banks and other fmancial service providers seized the opportunity to realize profits by expanding their services to the informal sector. Despite these efforts, evidence exist that MSMEs prefer to use informal sources of finance to meet their financial needs and obligations. It is not clear whether this is as a result of preferences or financing constraints. This study adopts the use of both revealed preferences from the 2016 MSME survey by KNBS (Kenya National Bureau of Statistics) as well as discrete choice experiment to elicit financing preferences of MSMEs in Kenya. A choice experiment is administered to a sample of small-scale enterprises in Nairobi to assess how they value a range of financial products. DCE data collected is analyzed using McFadden's conditional logit model with unknown parameters estimated using maximum likelihood procedure. The results from the choice experiment are consistent with revealed preference data collected from the MSME 2016 survey. Conclusively, the study finds that interest rates are the most important attributes followed by form of collateral and speed of accessibility. Moreover, the most preferred source of financing was found to be Mobile banking, SACCOs followed by Commercial Banks. Lastly, the study supports that the Discrete Choice Experiment is effective in studying the financing preferences of small businesses in Kenya due to the convergence of stated and revealed preferences.
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    Human capital, governance and foreign direct investments: Evidence from sub Saharan Africa.
    (Strathmore University, 2020) Kabaru, Fatima Wanjiru
    Developing economies in Sub Saharan Africa have become increasingly integrated into the global economy in the recent past. As such, this region has experienced a surge in inward Foreign Direct Investments (FD I). It is expected, that this increase in FDI should lead to better economic performance, hence increased economic growth. However, this effect is determined by the absorptive capacities of the host countries such as governance and human capital. This study provides empirical evidence of the impact of foreign direct investments (FDI) on total factor productivity (TFP) growth, while dependent on the level of governance and human capital of the host country. This analysis was conducted using cross country data for 19 countries in Sub Saharan Africa (SSA) for the period 2007- 2017. The empirical analysis was conducted using the System Generalised Method of Moments approach, accompanied by the Fischer's unit root and the Sargan tests to check for stationarity and overidentifying restrictions respectively. The results suggest a positive non-linear effect of FDI on TFP growth (albeit statistically insignificant). However, the paper also finds that this effect is dependent on human capital as well a governance. The effect is positive with respect to human capital and negative with respect to the latter. This hence implies that efforts should made in increasing the human capital in SSA countries. However, the government systems need to be significantly changed in order to realise gains in TFP growth from inward FDI. Further research can be conducted to determine th effect of other absorptive capacities such as trade openness and financial development on the FDI-growth nexus in SSA.
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    Macroeconomic determinants of SME performance in Kenya
    (Strathmore University, 2020) Kinyua, Lucy Wanjiru
    This paper explores the relationship between SME performance, as measured by growth in total annual sales, growth in the number of permanent full-time employees and capacity utilization, and macroeconomic factors- the real effective exchange rate and the terms of trade, using a sample of 45 SMEs in Kenya over a period of 3 years. The random effects estimation technique is used and it is discovered that the real effective exchange rate has an inverse relationship with SME performance and the terms of trade variable has a positive relationship with performance. However, none of the estimates are statistically significant. In addition, the data do not confidently support the conclusions that macroeconomic factors exert a causal impact on SME performance.
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    Modeling nominal exchange rates in Uganda. A comparison between traditional unit root tests and fractional integration
    (Strathmore University, 2020) Nabatanzi, Catherine Kamya
    This paper analyzes six major nominal exchange rates in Uganda, determining whether shocks in each series are transitory or permanent in the long run. We obtain results from traditional unit root tests and compare these to the results from newer fractional integration techniques that have been shown to have higher power in establishing stationarity or mean-reversion. The results show evidence of mean reversion in the cases of Euro and Kenya shilling, but not for the US dollar, Japanese Yen, the Pound and the Canadian dollar. This means that the shocks affecting the latter currencies do not dissipate in the long run.
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    The pricing of liquidity risk: Evidence from the Nigerian and South African stock markets
    (Strathmore University, 2020) Gitonga, John Mwangi
    This study examines whether an illiquidity premium is priced into the return process of equities. Specifically, the paper uses a liquidity augmented Fama and French (2015) five-factor model to test whether liquidity effects are captured in stock returns. The illiquidity premium is captured using the IML (illiquid minus liquid) factor which represents a compensating premium investors require to hold less liquid stocks as compared to more liquid stocks. The model constructed was tested on the Nigerian and South African stock markets over an analysis horizon of 2013-2018 with a greater focus on the Nigerian Stock exchange as it faces considerable liquidity challenges. Results from the analysis show that liquidity is indeed priced in asset returns with an average annual illiquidity premium of 2.15% for Nigeria and 0.136% for South Africa. The coefficients on the liquidity factor also generally proved significant in explaining asset returns thus confirming the main hypothesis of this study. The presence of an illiquidity premium increases the cost of equity for the aforementioned markets hence certain policies that may be implemented to spur liquidity in these markets include increasing free float requirements for listed companies and improving trading systems to ensure efficiency and quick execution of trades.
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    Pro-cyclical modelling of cancer mortalities based on macroeconomic factors
    (Strathmore University, 2020) Okinyo, Elly Okoth
    This paper tests for the procyclicality of the cancer mortalities and the economic regimes for the various regions, herein outlined as per the World Bank rankings as either high income, upper middle income, lower middle income or low-income countries. Previous studies have been carried out to examine the relationship between business cycles and cancer mortalities for advanced economies, less is known about the relationship existing between the existing macroeconomic variables and the cancer mortalities for the less developed countries. This study thus assemble unique panel data set containing country-specific crude cancer mortalities, the GDP per capita, the share of the GDP spent on health(GDPEH), the annual cancer incidences, the 5-year prevalence rates and the disability-adjusted life years lost as a result of cancer. The results show a procyclical relationship between cancer mortalities and the economic growths a finding consistent with that of (Chen, et a!., 20 17), whereas there exists a countercyclical relationship between cancer mortalities and the investment in the health sector
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    The relationship between happiness and income in the East African community
    (Strathmore University, 2020) Karanu, Jeniffer Wairimu
    This study aims at determining the impact of income on happiness in the East African Community (EAC). Happiness is measured on a ladder from 0 to 10 where 0 is vety unhappy and 10 is vety happy while income is measured by the log of GDP per capita. This study uses a Panel Data approach which covers four EAC member countries; Kenya, Uganda, Tanzania and Rwanda from the period 2006 to 2018. The Random Effects model is used to estimate this relationship and it was found that at the 99% confidence level, there is a statistically significant positive relationship between income and happiness. It would therefore be impottant for policy makers to ensure individuals have a decent income so they can meet their basic needs and improve their happiness. Similarly, life expectancy was found to have a negative relationship with happiness, holding all else constant, implying the need for quality healthcare. At the 95% confidence level, social suppott was found to have a statistically significant positive relationship with happiness, holding all else constant. This emphasizes the need for a strong support system through family and friends. Unemployment was also found to have a statistically significant positive relationship with happiness at the 90% confidence level, holding all else constant. Employers should therefore improve working conditions so that people can enjoy working rather than being unhappy when employed. This study encourages further research into other detem1inants of happiness in the EAC as well as the reasons for low happiness levels.