Determinants of investor confidence in Kenya’s corporate bond market: moderated by equity risk premium

Abstract

This study examined determinants of investor confidence in Kenya’s corporate bond market: moderated by equity risk premium. Its specific objectives were to: assess the effect of market determinants on investor confidence; examine the effect of bond characteristics on investor confidence; investigate the effect of bond default risk on investor confidence; assess the effect of economic growth on investor confidence in Kenya's corporate bond market; and examine the moderating effect of equity risk premium on the relationship between investor confidence and determinants of investor confidence in Kenya's corporate bond market. The research was anchored on Information Asymmetry Theory and Business Cycle Theory. The research adopted a positivist research philosophy that implemented a longitudinal research design. The target population and sample size were corporate bond market and gross domestic product data between 2014 to 2024. The data that was analysed using correlation and regression analysis after running diagnostic tests. The findings revealed bond market volatility and bond default risk had a negative effect on investor confidence in the corporate bond market while bond characteristics had a positive effect on investor confidence. Additionally, economic growth was found to have no relationship with investor confidence and moderating effect of equity risk premium on determinants of investor confidence was determined as insignificant. The study concludes that bond market volatility and bond default risk have a negative effect on investor confidence while bond characteristics had a positive effect. The research recommends for regulators to ensure continuity and consistency in fiscal and monetary policies, especially during politically sensitive periods such as general elections. It is recommended that the national treasury and NSE intermediaries to improve the structural quality of bonds to attract investors.