BBSA Research Projects

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11-day cycle of stock prices in Kenya around profit warnings
(Strathmore University, 2020) Kagiri, Jonathan Njenga
A profit warning is a statement issued by a company in order to inform the public that the profits for a specified period will be significantly different from the expected profit levels. The Capital Markets Authority, which is responsible for the regulation of the stock exchange, in a bid to reduce the levels of information asymnetry and conflicts of interest between managers and shareholders, made it a requirement for all companies listed on the Nairobi Stock Exchange to issue profit warnings if their profit will be 25% less than what was expected. This study aims to view the abnormal returns surrounding a profit warning on the returns within a 1 0-day scope of the release of a profit warning. The theories and hypotheses this study relies on are the agency theory, the efficient market hypothesis and the signalling theory. An event study methodology was used, with abnormal returns being derived as a regression analysis result of the stock versus the market returns. The result being that the abnormal return is significantly different on the trading day after the profit warning and two days after the profit warning.
An Aggregate analysis of the impact factor of the index based livestock insurance pastoralists in Kenya
(Strathmore University, 2018) Matano, Del Words
The purpose of this study was to quantify the effects of Index Based Livestock Insurance in Kenya on income generation and welfare enhancement of pastoral households. Index-Based insurance attracts attention as a potentially effective tool for reducing vulnerability of agricultural household’s in developing countries. However, previous literature has assumed away how household intertemporal behavior and welfare would change by reduced production risk and shock due to index-based insurance. The paper employed the endogenous treatment regression model in order to quantify the effects of Index Based Livestock Insurance on an aggregate level. The study finds that insurance provision induces pastoralists to shift production towards higher return but higher risk breeds of livestock. The results support the view that financial innovation can mitigate the real effects of uninsured production risk.
Agricultural micro-insurance in Kenya: determinants of the loss and profit experienced in insurance companies in Kenya in 2014
(Strathmore University, 2016) Kirui, Fiona C
ABSTRACT The Kenyan agricultural production sector is faced with a lot of risks that will affect a farmer's level of income. The Kenyan insurance market offers two types of-agricultural micro insurance products, index based crop insurance and indemnity based crop insurance. This study has investigated the significant factors that affect profitability of an insurance company. To provide answers to the research questions quantitative methods were employed. Use of simulation of variables, correlation tests, and regression analysis were the major quantitative tools used to analyse the data availed. The results of the study conducted showed that companies that offer index based products are more profitable compared to companies that offer pure indemnity products. It was also noted that a combination of both products leads to a higher profit margin as opposed to offering pure based products.
An analysis of longevity risk in a portfolio of life annuitants
(Strathmore University, 2015) Njeri, Sharon
Longevity risk has economic significance for governments, individuals and corporations. There is need to analyze the expected future lifetime of a population anticipating to receive lifetime benefits in Kenya. This paper performs such an analysis on the annuitants of a Kenyan life insurance company by making use of the Lee carter model and further describes ways to manage this risk. The results of this paper are directly relevant to annuity providers. It is found that life expectancy is increasing in the future up to some point where it gradually decreases. Conclusions made are that several models should be used to investigate this risk so as to reduce model errors and that impact of the data used is financially material.. Suggestions are that companies should create Value at Risk estimates of capital to cover this risk over one year periods and that more research should be done on managing longevity risks by use of capital markets in the country.
An analysis of the effect of investment climate on performance of public private partnerships - a case study of Sub Saharan Africa
(Strathmore University, 2015-12) Wainaina, Eric Mwangi
The study investigates the relationship between the performance of Public Private Partnerships (PPPs) and the investment climate in Sub Saharan Africa. The investment climate should significantly affect the performance of PPPs since good investment climate is a necessary prerequisite for investment. Infrastructure investments are essential to achieve economic prosperity, promoting growth and enhancing well-being. Recently to meet the growing demand for infrastructure development public entities have started to too).;_ at Public Private Partnerships to meet this deficit. The private sector participation is critical, bringing more funds; expertise and efficiency to the development of projects. For the analysis, a range of advanced panel estimators, namely random-Poisson, negative binomial, random generalized least square (GLS), random-tobit, were utilized to overcome the potential data related problems and for the robustness check of the estimated results. The results of the analysis suggest that large size and relatively higher income markets attract more PPP projects. The empirical evidence also suggests that macroeconomic stability, quality of regulation and governance are important factors in determining PPP in the infrastructure. The country risk is found to have some role in determining investment in PPPs although not to a very significant effect. The findings of this study will help the policymakers of developing countries in framing up such policies, so as to encourage more private firms to engage in infrastructure building through PPP.
Analysis of the post earnings announcement drift in the Nairobi Securities Exchange
(Strathmore University, 2015-12) Musalia, Claude Mugaravai
This paper is an event study concerning the market anomaly, Post-earnings-announcement drift (PEAD) in the Nairobi Securities Exchange from 2008 to 2014. The PEAD theorizes that a stock's cumulative abnormal returns tend to drift in the same direction of an earnings surprise for several weeks following an earnings announcement. Its aim was to determine if the PEAD occurred in the Nairobi securities exchange and whether it could be used to monitor stock performance. Stock performance was determined by using the market model to regress the stock returns against the market returns. Evidence from the study suggests that the PEAD anomaly occurred in the NSE and that it could be used to monitor stock performance.
An analysis on the adoption of IFRS 17 and the transparency of financial reporting in insurance companies in Kenya
(Strathmore University, 2021) Ndeda, Marie Anyango
This study was carried out to analyse the effect that the adoption of !FRS 1 7 by insurance companies in Kenya would have on financial reporting transparency. Insurers across the world and various scholars had raised concerns on the limitations of the current standard being used (!FRS 4) in insurance accounting. The data used in the analysis was obtained from the financial statements of 18 insurance companies in Kenya from 2010 to 2019. The dependent variable in the analysis was a transparency measure represented by R2 obtained from a regression involving eamings from the current and previous years. The independent variables were the Contractual Service Margin (CSM), Profit before tax (PBT) and the disclosure intensity measure. The Ordinary Least Squares (OLS) estimator was used in the analysis. Results from the analysis showed that CSM unlocked at varying rates and the disclosure intensity measure under !FRS 17 were statistically significant. All variables had positive coefficients apart from the disclosure intensity under !FRS 4. The conclusion therefore was, the adoption of !FRS 17 would enhance fmancial reporting transparency if, CSM was unlocked using varying interest rates, the building block approach was applied and if the disclosure requirements provided by !FRS 17 were followed
Analyzing the significance of the impact of political unrest and terrorism on Kenya's tourism industry: an event study approach
(Strathmore University, 2018) Ndunyu, John Gakuya
Tourism is one of the key drivers of Kenya's socio-economic development. The total contribution of the tourism industry to Kenya's Gross Domestic Product was 9.8% in the year 2016 while the total employment contributed by the tourism industry in Kenya was 9.2% of total employment in Kenya. The tourism sector is therefore a sensitive area that could cause significant socioeconomic disasters in an economy if negatively affected. Because tourists are sensitive to the negative image of a tourist destination, events of violence can affect a tourist destination long after the event has passed and stability has, in effect, been restored. Perceptions of political instability and safety are a prerequisite for tourist visitation. Violent protests, social unrest, civil war, terrorist actions, the perceived violations of rights, or even the mere threat of these activities can all serve to cause tourists to alter travel behavior. Over the past 20 years, Kenya has experienced notable and painful ordeals of terrorism and political unrest. Some of the events that claimed a great number of casualties are the United States Embassy bombings of 1998, the 2007-2008 postelections violence, the 2013 Westgate tenor attack and the Garissa University massacre
Application of the Gumbel Copula for Economic Risk Aggregation - a case of Kenyan Banks
(Strathmore University, 2015-12) Chatoro, Andanje Marian
Commercial banks are some of the most heavily regulated institutions, not only in Kenya but also in other parts of the world. Increasingly, the Basel Accords have been revised to require banks to set aside enough funds to cover their risks. Commercial banks, however, face many risks chief among them market and credit risks. These risks tend to have different distributions which complicates the calculation of a firm-wide measure of risk to calculate economic capital. Many companies use value at risk as it is simple and easy to explain. However, value at risk is not wholly dependable due to the limitations associated with correlations and the fact that it does not fulfill the sub-additive property. The copula function was therefore developed to deal with these challenges. This study applies the Gumbel copula in measuring dependence and economic capital using data from Kenyan banks.
Application of the Hedonic pricing model in real estate valuation in Nairobi County : a study of the Hedonic model
(Strathmore University, 2018) Inganji, Tecla Alumasa
Housing occupies an important position in the Kenyan psyche along with the concept of home ownership. The residential developments and investments attract both institutional, corporate organizations as well as private individuals. There are indications that the residential market in Nairobi is very active and that most of the valuation firms in Nairobi carry out market-based valuation of residential properties. The study is about the relevance of the hedonic pricing model in Nairobi and in particular to assess what kind of pricing methodology is used in the valuation of property in Nairobi County. The study attempted to determine the various attributes that are considered in the pricing models used in the County. The study was carried out in Lavington and Riverside estates, which are up-market residential estates of Nairobi. The research was qualitative and was conducted using information gathered from questionnaires, interviews and secondary material from Institution of Surveyors Kenya. The study found out that the significant factors that determine the value of a residential property are size of plot, location, services, developments, land reference number and the characteristics of the plot. The study as well found out that the most preferred method of valuation used in Nairobi is the Cost approach, however, comparable sales are adopted to justify the final outlook of the value.
Assessing the determinants of public pension system reform in Kenya
(Strathmore University, 2015-11) Okoth, George Owino
In recent years many countries around the world have either undertaken or are seriously considering a pension reform due to various factors. This study was done to tty and establish the key factors Kenya should consider when undertaking a public pension system reform. Data was collected from 2005 to 2013. Time series regression analysis was conducted with the NSSF fund value growth as the dependent variable and the following independent variables: central government debt, pension debt, external debt, gross savings as percentage of GDP, contributions growth rate, age dependency and life expectancy. The regression analysis was used to determine the relationship between the dependent variable and the independent variables. The study found a significant relationship between the 'NSSF fund value growth and central government debt, pension debt, gross savings as percentage of GDP, life expectancy and age dependency ratio, indicating that pension reforms have generally been effected because of economic and demographic factors. The study recommends that policies should be put into place to better manage pension contributions, pension debt and the age dependency ratio, to increase the sustainability and robustness of the NSSF.
Assessing the impact of volatility on expected stock return
(Strathmore University, 2015-12) Lelo, Sora
Many researchers have studied movements in aggregate stock market volatility. Some argue that the relation between returns and volatility is strong. Pindyck (1984) attributed much of the decline in stock prices during the 1970's to increase in volatilty. On the other hand , Porteba and Summers (1986) argued that the time-series properties of volatility make the scenario unlikely. Neither study, however, provides a direct test of the relation between expected return and volatility. The amplitude of the fluctuations in aggregate stock volatility is difficult to explain using simple models of stock valuation (Schwert G. W.,1989)
The best Takaful model versus Conventional Insurance on profitability
(Strathmore University, 2014-03) Kioko, Judith Nzisa
The study was conducted in Nairobi between July 2013 and March 2014, and data was obtained from the leading takaful operator in Kenya Takaful Insurance of Africa (TIA). Takaful is a type insurance that enables policyholders to share in profits if they do not make a daim. The data obtained was simulated across the three takaful models that exist and the profits compared with those from the conventional insurance. Conventional insurance refers to the normal type of insurance. The three takaful models are the mudharabah model, wakala model and wakala with mudharabah model. The research aimed at identifying the best takaful model in terms of profitability. It was found that the best model was the wakala with mudharabah model as it offered the highest profit to the operator. The best takaful model was then compared with the conventional insurance profits. The takaful model proved to be more profitable than the conventional insurance mode of operation.
Board composition and enterprise risk management in the banking industry in Kenya
(Strathmore University, 2017) Kahenya, Nancy Njeri
The Kenyan banking sector has experienced a myriad of changes, both negative and positive. Being a developing economy, the sector’s efficiency and sustenance is vital to the country’s economy. Enterprise Risk Management and Board of Directors’ composition are both significant issues ensuring stable economies and avoiding corporate mishaps such as those witnessed in the Eron and Worldcom cases. ERM is measured in terms of financial performance. It is in this light that this study seeks to find the relationship between ERM and board composition in terms of gender, education, and board size. Based on the Shannon’s diversity test, the study establishes that the boards of Kenyan listed banks are not diversified in terms of gender and educational backgrounds in boards is quite minimal. The study also finds out that there exists a relationship between board composition and ERM.
Calculating risk based capital requirement using correlation method
(Strathmore University, 2018) Omar, Farooq Idle
Kenya has 49 insurers, five re-insurers and almost 200 brokers in a country where about 3 percent of the population has cover. A lack of proper risk management has seen many insurers in Africa become insolvent. Kenya, for example, has seen at least seven insurers in the last decade being placed under statutory management, and eventually liquidated, due to inadequate capital. In view of this, this project will examine risks that affect capital calculation of a life insurance company in Kenya.
Calibration of rainfall in weather index - based micro - insurance for agriculture
(Strathmore University, 2015-11) Ng'ang'a, Wanjiru
This project presents the calibration of rainfall in weather index-based micro-insurance for agriculture in Kenya. It simply seeks to determine if rainfall alone is a significant factor in order to use it as an index that will determine indemnity payments when an event arises. Using linear regression the study found the relationship between expected yield and rainfall, thereafter a payment index was calibrated. The results showed that rainfall is a significant factor in determining the yield of a crop in Kenya and would be a very useful product in micro-insurance for agriculture in Kenya. It is recommended that this product should be administered in different geographic framing regions in Kenya having tailor made the index to the specific region's specifications.
Callibration of a multi - factor weather index to determine the trigger event of claim payments on crop micro insurance in Eastern Kenya
(Strathmore University, 2015-11) Nasidai, Mruttu Kerry
In 2014, among the seven companies that offer agricultural insurance in Kenya, only two of the companies reported a profit. The shared characteristic between these two companies is that they both used index-based insurance. The intention of this study was to explore index based insurance through the calibration of a multi-factor weather index to be used in a crop micro insurance to' determine the trigger event of claim payments. This research used linear regression, Generalized Linear Models and Value at Risk to illustrate the relationship between weather elements and claim payments. From this study we can conclude that we can illustrate the relationship between weather elements and expected crop yield, and therefore use this interaction to base claim payoff calculations. Recommendations for further research into this topic include widen the area under study to include areas with a wider scope of weather variations and to increase the number of crops under research to include those that are more sensitive to weather changes. The work presented aims to encourage more index-based programs in Kenya to help farmers manage risk in a more innovative way and help expand the insurance industry in Kenya as a whole.
Capital adequacy requirements for Kenyan banks
(Strathmore University, 2014-03) Wandera, Benard Ojiambo
This research sought to analyze the relationship between Kenyan bank performance and levels of capital held. Using cross sectional data from bank annual reports and the Nairobi Securities Exchange (NSE) Handbook from 2006-2012, a regression analysis was conducted. Evidence from the results suggested that bank profitability could either vary positively or negatively to the levels of capital held. In certain banks, the relationship was positive while in others, it was negative. Based on these findings, it is therefore, necessary that Kenyan banks hold adequate levels of capital in order to experience an enhanced profitability through interest income on loan and advances.
The causal relationship between the stock market and foreign direct investments - evidence from Kenya
(Strathmore University, 2015-11) Siimoi, Tobiko Allyn
The paper aims at investigating the nature of the causal relationship between Foreign Direct Investments and the Stock Market index in Kenya. The relationship has proved to be significant enough to solicit an empirical relationship. The Granger Causality test as proposed by C. J. Granger in 1969 and later redefined by Toda and Yamamoto in 1995 is applied in the study. For the test to be conducted stationarity must be proven, therefore the study adopts 2 methods to test for stationarity; The Augmented Dickey-Fuller (ADF) and The Phillips-Perron tests. The panel data is for the period 1990-2014. Data on the Stock Market Index was obtained from the NSE website and data on Foreign Direct Investments will be obtained from the World Bank website. The results from the study showed no causal relationship between the 2 variables studied.
Chronic disease management programs on health insurance profitability in Kenya
(Strathmore University, 2017) Bongi, Nimatoi Mwanamwinyi
Chronic diseases have been a real problem in Kenya and in the entire world. Most of these diseases are non-communicable and affect the population towards old age. This chronic diseases if not well managed may lead to acute illnesses that are costly to cure and may lead to costly admission care. In the modern world where insurance is becoming popular, a lot of these costs are transferred to the health insurance providers. For the population that is receiving pension benefits. These costs end up reducing the expected utility for these funds received. This paper has been written in this light and is aimed at showing the significance of chronic disease management in increasing profitability for health insurance providers and improving pension's utility for beneficiaries. This has been done through predicting expected costs for chronic disease management programs for the expected population at risk by use of a predictive model. This hence enables health insurance providers and pension sponsors to load for justifiable risk amount in the premiums charged for the respective benefits. This is alongside helping pensioners appreciate their pension benefits more as they derive more utility from them.

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