BBSF Research Projects (2014)

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    An evaluation of individual pension funds in Kenya, the factors that affect their growth and the opportunities they have.
    (Strathmore University, 2014-03) Ndindi, Wambua Christine
    One of the sectors in the economy that has been involved in mobilization of the savings is the Pension fund industry. The role of savings in economic growth has been given considerable attention given the fact that for any sustainable growth and development, resources must be effectively mobilized and allocated efficiently so as to achieve the growth objectives. The general objective for this study was to evaluate individual pension funds. The specific objectives were:-To establish the factors that affect the growth of pension funds in Kenya, to find out the impact of the mentioned factors on the growth of pension funds and to identify the opportunities that pension funds in Kenya have to encourage their growth. Literature was reviewed of the famous scholars in the Pension world. Such inc1uded John Campbell a professor of Economics at the Harvard University who has done research on financial literacy and conducted that financial illiteracy leads to consumers not maximizing on their welfare. Robert Holzoman, emphasis on the need of IPPs investing in long-term Infrastructure bonds and using derivatives such as swaps to mitigate against certain risks such as interest rate risk Jeffry Cannichael, a World Bank researcher concludes that transparency is the factor that has greater impact on the growth of IPPs. A questionnaire was administered to the twenty eight Individual Pension Plans in Kenya and twenty two pension plans responded. The data was regressed in Microsoft Excel to find out if those factors do have any effect on the growth of IPPs. A p-value of 0.01554 showed that there was strong evidence to signify that a relationship did exist between the factors suggested from the Literature and the growth of IPPs. In addition to the questionnaire an analysis of the annual reports of the specific Individual Plans was done to determine the number of schemes they have invested in. It was clear from the views of the respondents that liquidity has the highest impact on growth of IPPs. From the findings,45% of the respondents stated that liquidity was the factor that impacted the growth of IPPs,32% of the respondents said it was regulation and 14% said it was administration.
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    Extent of compliance with IFRS Financial Instrument Standards - a case study of Banks in Kenya
    (Strathmore University, 2014-03) Ochieng', Yvonne Adhiambo; Injeni, Geoffrey
    The aim of this study is to identify the extent to which listed banks in Kenya comply with International Financial Reporting Standards, with particular reference to financial instruments IAS 32, IAS 39 and IFRS 7. It also seeks to identify the formal mechanism employed to monitor and enforce IFRS compliance in Kenya. In addition, it is further intended to identify the problems listed banks encounter in complying with IFRS.The level of mandatory compliance with lAS 32, JAS 39 and IFRS 7 was measured using a mandatory disclosure index (MDI) which the researcher developed from a self-constructed compliance checklist. An open ended questionnaire was also used to gather data for the study. The sample consisted of 42 registered banks and covers the period of2012. The overall results show a high degree of compliance with lAS 32, lAS 39 and IFRS 7, though not absolute. The study reveals the existence of a monitoring and enforcement mechanism which the researcher finds to be not too rigorous. Finally, the study identifies the number of regulatory requirement registered banks had to comply with in addition to the IFRS requirements, the ever changing IFRS, and the inability of the banks to automate the IFRS into their system to make it easier and faster for financial statement preparation, as some of the major challenges that registered banks go through in complying with the IFRS.
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    Return volatility and the pricing of equities at the Nairobi Securities Exchange
    (Strathmore University, 2014-03-12) Chege, Eric Theuri
    Using the monthly return series between 1999 and 2013 I find evidence that volatility is priced on the Nairobi Securities Exchange. The GARCH-M model yields positive and significant ARCH and GARCH parameters and the shocks of equity returns to conditional volatility are highly persistent. We find that the conditional variance is driven by the past conditional variance to a greater degree than by new disturbances. The E-GARCH model gives similar results with some marginal improvement indicating that asymmetry does not affect the relationship between risk and return. A possible explanation for these findings would be that if the future seems risky, investors may want to save more in the present thus not requiring a large risk premium. Portfolio managers may find the results of this study useful when carrying out a forward-looking valuation of a well-diversified portfolio of Kenyan stocks, as well as other similar stocks, based on market characteristics.
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    Viability of Equity Valuation Techniques with regard to Price Target Attainability for Nairobi Securities Exchange Companies
    (Strathmore University, 2014) Nzesya, Lilian Mwikali; Injeni, Geoffrey Ikavulu
    The purpose of this research was to establish the popular techniques that used by different firms in the valuation of shares. In line with this, the study has also sought to establish the reason behind the popularity of certain tools. The research was also aimed at finding out whether price targets formulated by actual valuation techniques are valuable. This was achieved through a series of correlation tests as well as examining of how many of the price targets were either attained or exceeded. The third objective of this research was to pinpoint some of the key challenges that analysts and investors in the market face when using these valuation tools. By highlighting the main challenges they face, the research sought to provide possible recommendations that may benefit the Capital Market Authority (CMA) in Kenya, the Nairobi Securities Exchange, investors, analysts and other stakeholders in the financial markets. The findings of the research showed that Discounted Cash flow analysis, Price/Earnings multiple, Price/Book Value are the most popular techniques with net Asset Value being the least relied upon valuation tool. With regard to price target attainability, only 50.83% of the price targets from analysts' valuation reports were attained or exceeded. This was however skewed in terms of the valuation techniques in that price targets obtained through Price Book Value had the highest percentage being met. Difficulty in establishing fore - casted cash flows and discount rate and the difficulty in using and interpreting multiples were the main challenges that face analysts in the industry.