BSSF Research Projects (2020)

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    Impact of foreign exchange rate movements on company profitability in the tobacco sector. A case study of the British American Tobacco Kenya limited
    (Strathmore University, 2020) Darshna, Dinesh Kurji Patel
    Any firm engaging in international trade is exposed to exchange rate risk, whether translation, transaction or economic risk. Knowing the impact or its extent can help t1rms evaluate potential positions they can take in the forex market to hedge their exposures. This study examines the impact of movements in exchange rates on profitability of firms in the tobacco industry in Kenya, specifically looking at a case of BAT Kenya. This study explores the impact on profitability by employing a V AR Model from the period of 1995 to 2018. Profitability is looked at in terms of three measures: Return on Equity (ROE), Return on Assets (ROA) and Return on Invested Capital (ROIC) and the main exchange rates incorporated in the study are the USD, Euro and the GBP. The main idea behind using a V AR Model was due to its characteristics of obtaining impulse responses which are highly beneficial for governments when formulating monetary policies that are also dependent on exchange rates. Findings of the study reveal statistical significance of the exchange rates, bit different for different exchange rates. Additionally, shocks in the exchange rates are highly likely to impact corporate profitability and therefore firms operating in internationai trade are likely to experience exchange rate exposure and therefore these results are highly beneficial for them. A major limitation ofthe study is the inadequacy of enough data points. Due to lhe dynamic macro environmeui: that the exehange rates are exposed to, there is yet a grcnt room for research considering the many major exchange rates that affect any finn's cash flows.
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    Study of the macroeconomic determinants of the prices of residential real estate in Kenya
    (Strathmore University, 2020) Mulekyo, Tracy Mbeneka,
    According to Brueggeman and Fisher (2005) and Pagourtzi, Assimakopoulous, Hatzichristos and French (2003) real estate refers to land and anything fixed , immovable or permanently attached to it such as buildings and fences. Real estate markets are mainly characterized by the fact that they are heterogenous. There are no purchases in this market that are similar; every purchase, be it aparcel of land or developed property is unique and often, information on these transactions is not easily accessible or available to the public. The market is also characterized by large transaction costs and amounts in general. (Ridker, & Henning. 1969.) The buying process is not standardized because the pricing process is heavily based on negotiation. Housing has a significant role in sustaining economy growth in a country. The level of housing provision is one of the key performance indicators (KPis) of development (Ireri, 2010). ln . Kenya, specifically in major urban centres like Nairobi, supply of housing does not meet the . increasing demand, as a result of poor planning among other factors (UN- HABITAT, 2008)~ .· The Ministry of Land, Housing and Urban Development in 2013 estimated the annual demand for housing in Nairobi County at over 250,000 units yet the annual supply was a mere 30,000 . units niostly contributed by the private sector and not the government (Hassanali, 2012).
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    Income diversification and its effect on financial performance of listed banks in Kenya
    (Strathmore University, 2020) Nzive, Gloria Wanza
    This study aims to investigate the effect of income diversification on bank performance during the period 2012-2018. Financial performance was evaluated based on bank profitability and solvency. A descriptive research design was used. Secondary data was collected from the Central Bank Website, the NSE and the respective websites of the banks. The fixed effect and random effects models for panel data were used to study the relationship. The Herfindahl-Hirshman Index was used as a measure for income diversification. Profitability was measured by ROA and ROE. Solvency was measured by capital adequacy and asset quality. The statistical significance of each independent variable was tested by performing at-test at 5% level of significance. The explanatory variable explanatory power was evaluated using the coefficient of determination, R2 . Based on the fixed effect modelS, income diversification has a negative impact on profitability measured by both ROA and ROE. The effect is significant for ROA but is insignificant on ROE. As for solvency, random effect models reveal that income diversification has a positive effect on bank solvency as measures by capital adequacy and asset quality. The effect is significant for capital adequacy but is insignificant for asset quality. The study concluded that income diversification has a negative effect on probability and a positive effect on solvency. It is therefore recommended for banks to commit their resources to expand their noninterest income revenue streams if they want to improve their solvency levels. However, it should be done with caution as it may be at the expense of profitability.
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    The impact of board composition on dividend policy for listed companies in Kenya
    (Strathmore University, 2020) Njogu, Sylvia Bakhita
    With the emphasis on proper corporate governance new co1porate guidelines have recently been issued regarding board composition. TY1erefore, this study investigated the effect of board composition on dividend policy in listed non-financial firms in Kenya. The study was made up of a sample of 174 observations from 29 non-financial firms from 2013-2018. Dividend policy was divided into dividend decision and dividend payout. Board composition was represented by board independence, gender composition, board size and director ovvnership. The control variables were ROA, leverage and firm size. The relationship between dividend payout and board composition was obtained through a left-censored Tobit regression. The relationship between dividend decision and board composition was obtained through a logit regression. Based on the Tobit regression board size was a variable found to be positively significant. However, in the logit regression an additional variable was found to be significant besides board size, which was director ownership. 1Y1e other firm specific control variables used in the stz~dy also had desired impact on dividend policy. The results suggested that firms that have a larger board pay higher dividend. This evidence was consistent with the fact that the more the directors, the more the diversification benefits leading to a higher return that result into payment of a higher dividend. Hence, having a large board can be thought as a method to mitigate agency conflict because payment of a large dividend reduces the free cash flow.