MCOM Theses and Dissertations (2009)

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An Examination of staff layoffs in Kenya : evidence from companies quoted in the main investment market segment of the Nairobi Stock Exchange.
Mwandembo, Christopher; Dr. Ruth Kiraka
Staff layoffs in Kenya seem like the most prevalent solutions available to management teams of companies faced with economic difficulty. This study targeted companies quoted in the Main Investment Market Segment of the Nairobi Stocks Exchange, with a view of finding out the drivers to downsizing; its outcomes (costs and benefits); other factors impacting these outcomes and ways of enhancing the success of the strategy. Consistent with the review of literature, the study found out that downsizing is motivated by economic, strategic and technological reasons. the positive outcomes are increased profitability, improved productivity, better strategic networks and leaner structures. on the flip side, the adverse effects include reduced staff morale, hampered innovative capacity, injured corporate reputation and loss of stock knowledge. In order to enhance the success of downsizing, business leaders may use financial incentives, pre and post retrenchment counseling to the exits and survivors respectively, and offering alternative training or sources of income. however, this study also found that the positive outcomes of downsizing may also be achieved using other ways. For example, increased profitability may be attained by boosting the number of units sold, enhancing market penetration or improving production efficiency. a review of outcomes of downsizing vis-a-vis their underlying drivers therefore suggests that staff layoffs in themselves may be more injurious to the firm than beneficial. positive outcomes can be achieved by other means. downsizing should therefore only be used as strategic initiative aimed at increasing productivity and /or efficiency while retaining the most valuable resource in production - the human capital.
An empirical analysis of the evolution of statistical properties and the volatility structure of the Nairobi Stocks Exchange 20-share index returns.
(Strathmore University, 2009) Kimundi, Terry Mwende; Dr. Silas N. onyango
Time series of financial and economic data have been found to exhibit unique statistical properties not found in other time series. The statistical properties of the NSE 20-share index returns are examined over a period of 16 years, from January 2 1992 to December 24, 2007. In addition, I use the General Autoregressive Conditional Heteroskedasticity (GARSCH) model of Boollerslev (1986) to estimate the volatility present in the NSE-20 index returns. This period is marked by significant growth in market capitalization and structural change, with increased usage of information technology and increased regulation of the financial and money markets. I find that 1. the index returns display evidence of predictability, but the degree of predictability has reduced over time. 2. The index returns are non-normal, with significant skewness and leptokurtosis; 3) there is evidence of volatility clustering in the returns, where the periods of high volatility are followed with periods of low volatility and periods of low volatility are followed by periods of high volatility. 4. The frequency of fluctuations or volatility has increased over time. the statistical and volatility properties of returns from the market have evolved as the Nairobi Stocks Exchange has developed over time.
An evaluation of internal controls : the case of Nairobi small businesses
(Strathmore University, 2009) Kakucha, Wilfred; Dr. James Boyd McFie
This study evaluated the level of effectiveness of internal controls operating in Nairobi. Secondly, this study examined the relationship between the age of an enterprise and effectiveness of its system of internal control. Thirdly, this study explored the relationship between the amount of resources held by an enterprise and its effectiveness of its system of internal control. Fourthly, this study investigated the nature of the relationship between internal control and financial performance. The study was quantitative and was carried on from September 2007 to June 2009. Using a sample of 30 small business as listed in the National Social Security Fund (NSSF) Register of Kenya, 2008, the study sought to meet the above mentioned objectives. Data was collected from the managers of small business using interviews and examination of documents pertaining to internal control. the response rate was 80%. Data was then analyzed using descriptive statistics and regression analysis. The study found that there are deficiencies in the systems of internal controls, with the degree of deficiencies varying from enterprise to another. the components of internal control that were missing in most businesses surveyed were: firstly, risk analysis, and secondly lack of proper flow of information. In addition, the study established that the sample population lacked awareness of what constituted an effective system of internal control. The study also found that there is significant statistical evidence to support the negative relationship between the age of an enterprise and the the effectiveness of its system of internal control. In addition, the study established that there is a negative correlation between the resources held by an enterprise and its internal control weaknesses. finally, the study found that there is a weak negative relationship between the internal control weaknesses and financial performance. there is need to enlighten operators of small business of what constitutes an efficient and effective system of internal control through seminars and forums. To cut down on the cost of maintaining full fledged internal audit and human resources departments, the small business should outsource this to specialist professional firms who will aid them on a timely basis. The researcher suggests that there is need to replicate the study in medium and large enterprises. Finally, there is need to establish the nature of frauds occurring in small businesses.
Information systems investment appraisal in commercial banks in Kenya : theory and practice
(Strathmore University, 2009) Onsongo, Elsie Khakasa; Dr. Ismael Ateya
A review of literature on the practise of Information Systems investment appraisal in firms suggests a gap between theory and practice. In an attempt to explore the extent of this gap, this research reviews the theory of fixed asset investment when applied to the current state of practice of IS investment evaluation among Kenyan banking institutions. Results of the survey show that the level of usage of discounted cashflow (DCF) techniques and sophisticated analytical and integrated techniques is low compared to the usage of simple financial and strategic techniques. To illustrate, simple ratio-based techniques were found to be very popular, with Cost Benefit analysis being used by 92% of responding banks, Payback Period (60%) and Return on Investment (60%). Appraisal techniques that consider strategic arguments were also found to be very popular, i.e. technical considerations (92%), competitive advantage (64%) and Critical Success Factors and SWOT analysis (56% each). On the other hand, DCF techniques were unpopular i.e. Net Present Value (8%) and Internal Rate of Return (0%). Further, analytical and integrated appraisal techniques were also found to be relatively unpopular: value analysis (28%), scoring models (16%), computer based techniques (4%), the Balanced Scorecard (56%) and Information Economics (40%). In addition, a partial relationship was found between the adoption of a type of investment appraisal technique and the size of a firm. As the size of the firm, determined by the book value of total assets increases, the usage of strategic and analytical techniques increases, while at the same time, the use of ratio-based techniques reduces. Based on these findings, this study highlights the shortcomings of normative fixed asset investment theory when applied to IS investment appraisal.
Information systems investment appraisal in commercial banks in Kenya : theory and practice
Ateya, Ismail Lukandu; Onsongo, Elsie
A review of literature on the practise of Information Systems investment appraisal in firms suggests a gap between theory and practice. In an attempt to explore the extent of this gap, this research reviews the theory of fixed asset investment when applied to the current state of practice of IS investment evaluation among Kenyan banking institutions. Results of the survey show that the level of usage of discounted cashflow (DCF) techniques and sophisticated analytical and integrated techniques is low compared to the usage of simple financial and strategic techniques. To illustrate, simple ratio-based techniques were found to be very popular, with Cost Benefit analysis being used by 92% of responding banks, Payback Period (60%) and Return on Investment (60%). Appraisal techniques that consider strategic arguments were also found to be very popular, i.e. technical considerations (92%), competitive advantage (64%) and Critical Success Factors and SWOT analysis (56% each). On the other hand, DCF techniques were unpopular i.e. Net Present Value (8%) and Internal Rate of Return (0%). Further, analytical and integrated appraisal techniques were also found to be relatively unpopular: value analysis (28%), scoring models (16%), computer based techniques (4%), the Balanced Scorecard (56%) and Information Economics (40%). In addition, a partial relationship was found between the adoption of a type of investment appraisal technique and the size of a firm. As the size of the firm, determined by the book value of total assets increases, the usage of strategic and analytical techniques increases, while at the same time, the use of ratio-based techniques reduces. Based on these findings, this study highlights the shortcomings of normative fixed asset investment theory when applied to IS investment appraisal
Perspectives on the transformation of microfinance institutions in Kenya into regulated status under the Microfinance Act.
(Strathmore University, 2009) Gikang'a, Peter Njogu Munyambu; Dr. Ruth Kiraka
The government's move to regulate Microfinance Institutions (MFIs) was primarily to create an enabling environment for MFIs to maximize outreach on a population without access to financial services in Kenya. The Microfinance Act, 2006 will allow qualifying microfinance institutions to transform into deposit-taking institutions. The Act lays the legal and regulatory framework of licensing and supervision of microfinance institutions. The primary objective of this thesis was to assess the prevailing institutional capacity and preparedness of the existing microfinance institutions to transform into deposit taking MFIs. Secondly, was to establish the perception of microfinance practitioners on the appropriateness of the legislation and regulations for the microfinance industry in Kenya. The study employed surveyed methodology to explore issues such as institutional capacity and preparedness of microfinance institutions. A researcher constructed questionnaire was administered to elicit responses from the microfinance institutions that are members of the Association of Microfinance Institutions (AMFI). Face-to-face interviews with executives of microfinance institutions were conducted to supplement the questionnaire and also for an in-depth understanding and analysis of certain key aspects of the research. findings of the study suggest that there are considerable challenges to the transition from informal to formal institutions. the institutions expressed concern with respect to certain regulatory requirements in microfinance legislation and regulations that make the costs of implementation quite high. the requirements that were considered to be most difficult and by extension considered inappropriate for the microfinance industry were the requirements for business premises, loan loss provisioning and disclosure and reporting requirements. the branch infrastructure and overall cost of transformation, in particular modernization of Management Information Systems (MIS) are considered quite significant, especially for smaller or rural MFIs which will have to incur additional costs of upgrading their MIS.
Perspectives on the transformation of microfinance institutions in Kenya into regulated status under the Microfinance Act.
Kiraka, Ruth; Njogu , Peter Gikang'a
The government's move to regulate Microfinance Institutions (MFIs) was primarily to create an enabling environment for MFIs to maximize outreach on a population without access to financial services in Kenya. The Microfinance Act, 2006 will allow qualifying microfinance institutions to transform into deposit-taking institutions. The Act lays the legal and regulatory framework of licensing and supervision of microfinance institutions. The primary objective of this thesis was to assess the prevailing institutional capacity and preparedness of the existing microfinance institutions to transform into deposit taking MFIs. Secondly, was to establish the perception of microfinance practitioners on the appropriateness of the legislation and regulations for the microfinance industry in Kenya. The study employed surveyed methodology to explore issues such as institutional capacity and preparedness of microfinance institutions. A researcher constructed questionnaire was administered to elicit responses from the microfinance institutions that are members of the Association of Microfinance Institutions (AMFI). Face-to-face interviews with executives of microfinance institutions were conducted to supplement the questionnaire and also for an in-depth understanding and analysis of certain key aspects of the research. findings of the study suggest that there are considerable challenges to the transition from informal to formal institutions. the institutions expressed concern with respect to certain regulatory requirements in microfinance legislation and regulations that make the costs of implementation quite high. the requirements that were considered to be most difficult and by extension considered inappropriate for the microfinance industry were the requirements for business premises, loan loss provisioning and disclosure and reporting requirements. the branch infrastructure and overall cost of transformation, in particular modernization of Management Information Systems (MIS) are considered quite significant, especially for smaller or rural MFIs which will have to incur additional costs of upgrading their MIS.
The Power of financial ratios in determining fraudulent financial reporting : the case of Savings and Credit Co-operative Societies in Kenya
Lari, Leonard Rang'ala
The study aimed at proving that the financial ratios currently computed by Savings and Credit Co-operative Societies (SACCOs) in Kenya may not assist users of the financial reports towards detection of fraudulent financial reports; other ratios can bring in light possible fraud. Unpublished related previous studies in Kenya have dealt with both companies and co=operative movement from different perspectives. The results at different levels of this study indicate that the best financial ratios able to bring to light fraudulent financial statements are : members' shares and deposits dividend return, member's loan schedule balance/loan ledge balance; financial investment/total assets; (liquid investments + liquid assets - short term creditors)/total assets; non-earning liquid assets/total assets; net loans to members/total assets; gross loans to members/total assets, members' deposits/total assets. Second best are : net profit/total assets ratio; total operating expenses/average total assets ratio; and growth in members' loans rate. The results support the general alternative hypothesis that financial ratios can detect fraudulent financial reporting (FFR) by SACCOs in Kenya. Specific ratios not currently in use, in the SACCOs sector have the power to reveal FFR. The sample of 46 SACCOs (23 of them affected by fraud) were deliberately chosen. The analysis of ratios was conducted on 27 covariates, using the following methods: stepwise logistic regression model, discriminant analysis, and Pearson correlation - a method used to measure and confirm the possibility of earnings manipulation. According to the regulator, fraud poses a threat to the future existence of SACCOs in Kenya. The limitations to this study include: existence ofa possibility of having other unidentified ratios that can detect fraud, some financial reports could not be used to to incomplete reporting structures and information, and the sample of fraudulent financial reports and non-fraudulent financial reports were limited to reported cases only. Further study is suggested to determine the extent of earnings management and the power of ratios in detection of FFR using a larger sample of SACCOs, beside the multipurpose cooperatives and marketing co-operatives to complete the results of this study.

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