International Journal of Business Management and Finance
Authors: Mary Wanjiku Mburu, Charles Ngonjo Ngatia
Abstract: Leasing involves a client company entering into a contract with a leaser to get credit for medium or long-term. The client, also known as the lessee, asks the leasing company to acquire assets, which may be movable or immovable, for business purposes. The leaser gives the assets to the lessee for a given time in return for payment in the form of rent. The general objective of this study was to establish the factors affecting lease financing in the manufacturing industry by focusing on Kariobangi Light Industries. The study also sought to determine the effects of access to information, financial resources and tax shield on lease financing in Kariobangi Light Industries. This research study used a descriptive research design. The target population was 300 managers/owners in the firms in Kariobangi Light Industry. The researcher was used a stratified random sampling to select 30% of the target population. The sample size of this study was 90 respondents. The study used primary data which was collected by use of selfadministered questionnaires. Content analysis was used in processing of the data and results were presented in prose form. The quantitative data in this research was analyzed by use of descriptive and inferential statistics by use of Statistical Package for Social Sciences (SPSS). Descriptive statistics such as mean, frequency, standard deviation and percentages was used to profile sample characteristics and major patterns emerging from the data. Further, multivariate regression analysis was used to establish the relationship between the dependent and the independent variables. The study also found that financial resources influence lease financing in organizations in the manufacturing industry most followed by access to information and tax shield. The study recommends that leasing companies should hold seminars for manufacturers and train them on the benefits of lease financing. The study also recommends that small manufacturers should adopt leasing financing so as to benefit from tax benefits.
Authors: Dikir Eric Simel, Dr. Lagat Charles, Dr. Muthoga Samuel
Abstract: Foreign Direct Investments play important roles in growth and development processes of many economies in the world. Despite their importance in economic development, FDIs in Kenya have been fluctuating over the years. Studies conducted in Kenya have focused on the determinants of foreign direct investment inflows in Kenya. Studies covering human capital development, inflation, economic growth and cost of borrowing in regards to influencing foreign direct investments are lacking in Kenya. The general objective of this study was therefore to determine the socio-economic determinants of foreign direct investment inflows in Kenya. The study also sought to examine the effect of economic growth, human capita development, cost of borrowing and inflation rate on foreign direct investment inflows in Kenya. The study also hypothesized that there is no significant relationship between economic growth, human capital development, cost of borrowing and inflation rate and foreign direct investment inflows in Kenya. This study adopted a retrospective longitudinal study design. The study relied on data on economic growth, human capital development, cost of borrowing, inflation and foreign direct investment inflows in Kenya for the period ranging from 1980 to 2015. Secondary panel data was used in this study. Data on the economic growth (GDP), FDI, human capital index and lending interest rates was obtained from the World Bank and International Monetary Fund. Data on interest rates was obtained from the central bank of Kenya. Data on inflation was obtained from Kenya National bureau of statistics. The secondary data was quantitative in nature and was analyzed using descriptive as well as inferential statistics. Descriptive statistics included frequency distributions, mean, standard deviation and percentages. Inferential statistics include analysis of variance, correlation analysis and multivariate regression analysis. The inferential statistics were used to evaluate the relationship between the dependent and the independent variables. Data was analyzed by use of statistical software known as STATA (version 14). Of the four socioeconomic factors studies, which include economic growth, human capital development, cost of borrowing and inflation rate, its only inflation that influences foreign direct investment inflows. However, economic growth influences inflation. The study recommends that the government of Kenya should control and regulate inflation rate around levels that stimulate investment.
Authors: Muthungu Peter Waiguru, Dr. M'Amanja Daniel
Abstract: Just like many east African countries, Kenya has been active in promoting local industries that play major roles in exportation. However, despite the various legislations in the attempt to have various measures to enhance the implementation of international trade, steady foreign exchange rate unpredictability combined with cost changes have undermined these endeavors. This study therefore sought to investigate on the effect of exchange rate volatility on the performance of horticultural exports in Kenya. Specifically, the study sought to establish the effect of interest rates, inflation rates and public debt on the performance of horticultural exports in Kenya. This research study was quantitative and a descriptive research design was used. The population under study was all the 58 licensed horticultural produce exporters (Licensed by HCDA) in Kenya. Monthly export earnings for all the licensed horticultural produce exporters as provided by HCDA were analysed. This was a census study and hence no need of sampling. This study used secondary data, which was gathered from HCDA, KNBS, and CBK for the period of ten years (11 years) (2004 - 2014). Horticultural export earnings statistics data will be obtained from HCDA. Data on foreign exchange rate fluctuations was obtained from CBK while data on inflation was obtained from KNBS. This study generated quantitative data which was analysed by use of descriptive and inferential statistics. Descriptive statistics included mean and standard deviation. On the other hand, inferential statistics included multiple regression analysis. All statistical analysis was conducted with the help of Statistical Package for Social Sciences (SPSS version 21). The study found that there is a negative association between foreign exchange rate and the performance of horticultural exports in Kenya. In addition, the study established that inflation rates inversely and significantly influence the performance of horticultural exports in Kenya (β=-0.178, p-value=0.021). Further, the study established that interest rate inversely and significantly influences the performance of horticultural exports in Kenya (β=- 0.167, p-value=0.042). In addition, the study established that inflation rates, interest rate and public debt inversely and significantly influence the performance of horticultural exports in Kenya (β=-0.312, p-value=0.000). The study recommends that inflation rate should be contained through sound policy measures as higher inflation rates may hurt the general export performance in Kenya. The study also recommends that the Central Bank of Kenya should set base lending rates that can help the banks profitable while at the same time not punitive to the borrowers.
Authors: Kisang Kiptoo Paul, Kogei Japheth, Ochieng Linus
Abstract: Studies on the factors determining stock market development and economic growth have been increasing in recent years. This study sought to examine the effect of macroeconomic factors on stock market development in Sub-Saharan Africa. The study was guided by the specific objectives focusing on the effects of income levels, banking sector development, stock market liquidity and institutional quality. The study adopted an explanatory research design so as to explore the macroeconomic factors surrounding the development of stock markets in SSA. The study targeted on all the companies listed and active at the selected ten Sub-Saharan African economies covering the period from 2001 to 2015. Using pooled cross sectional data from the selected sub-Saharan African countries, the study employed a panel data analysis technique with Stata (14) which has a rich variety of panel analytic procedures. Furthermore; the study used Time Series Regression model to examine the effect of the macroeconomic factors on stock market development in SSA. For stock market development indicators, market capitalization, listed companies and total value traded was considered. This study found that banking sector development influences the development of stock market development in Sub-Saharan Africa most, followed by stock market capitalization (in dollars), corruption perception index and GDP per capita in US dollars. Stock market liquidity was found to have a positive and statistically significant effect on stock market development. Similarly, income level was found to be positive and statistically significant in explaining the stock market development. As expected, the higher the income, the more likely it is for investors to save and invest because disposable income increase. Banking sector development was found to be positive and statistically significant. This study recommends that countries in Sub-Saharan Africa should improve their institutional capacity by reducing corruption. This should be done though development and strict implementation of policies. This study also recommends that countries in Sub-Saharan Africa should improve their banking sector by developing monetary and fiscal policies that support the growth of the banking sector.
Authors: Kiptoo Tanui Livingstone, Dr Karanja Ngugi
Abstract: Hedging can reduce underinvestment costs since it reduces the probability of financial distress by shielding future stream of cash flows from the changes in the exchange rates. Variability in cash flows will result in variability in the amount of investment. A decrease in planned investment means that the firm is foregoing positive net present value projects and since it has insufficient internal funds the firm is forced to raise costly external finance. Shareholders in Kenyan firms are losing billions of shillings each year due to directors’ failure to shop for appropriate hedging instruments. The widespread use of derivatives for hedging is well documented in the corporate hedging literature. Thus, why firms hedge and whether hedging creates value are important questions. However, none of these studies was conducted in Kenya on the determinants of corporate hedging practices, research gap. This study aimed at investigating on the determinants of corporate hedging practices used by companies listed in Nairobi Security Exchange. The specific objectives of this study were to establish the effects of long-term debt ratio, growth option, liquidity ratio and cash flow volatility on the hedging practices used by companies listed in Nairobi Security Exchange. This study used a descriptive design. The target population of this study was therefore 300. This study used purposive sampling to select on the financial managers. The sample size of this study was therefore 60 respondents which is 20% of the target population. The study collected both primary and secondary data. Primary data was collected using questionnaires. On the other hand secondary data was collected from newspapers, published books, journals and magazines as well as other sources such as the companies’ prospectus. Primary data was collected using questionnaires that were distributed to the respective respondents. Quantitative data collected was analyzed using descriptive statistics by the help of SPSS (V. 17.0) and presented through frequencies, percentages, means and standard deviations. Data was then presented in tables, figures and charts. In addition, multiple regression was used to establish the relationship between the dependent and the independent variables. This study established that there is a positive relationship between hedging practices used by companies listed in Nairobi Security Exchange and liquidity ratio, growth option and cash volatility. The study also found that long-term debt negatively influences hedging practices used by companies listed in Nairobi Security Exchange. This study established that most of the companies in Nairobi Security Exchange had experienced liquidity problems in the last 5 years. In addition, the study found that most of the companies in this study had not used hedging practices in the past. This study therefore recommends that companies listed in NSE should make use of hedging practices whenever they are facing liquidity problems.
Author: Mugo Anthony
Abstract: The objective of this research was to determine the effects of mergers and acquisitions on the financial performance of commercial banks in Kenya. Theoretically it is assumed that mergers improve company performance as a result of synergies acquired, market power, enhanced profitability and risk diversification. The research focused on the financial performance of commercial banks in Kenya which merged between 1999 and 2005. Comparative analysis of the bank’s performance pre and post-merger periods was conducted to establish whether mergers lead to improved financial performance before and after merging. Secondary data from financial statements was collected for 5 years before and after the merger and analyzed with the aid of statistical tools. Descriptive research design was used where banks’ performance shall be analyzed before and after the merger to determine whether there is any effect on the financial performance. The population used in this study was all the 36 Kenyan commercial banks that have undergone mergers. The study comprised of 16 commercial banks that have undergone mergers between 1999 and 2005.The study used secondary data from the NSE, CBK, published facts and figures and reports for the period in study. The data was analyzed on the basis of the mean. The chi square test was computed to test the null hypothesis. The study focused on the financial performance of the merged Kenyan banks before and after the merger. The comparative analysis for the pre- and post-merger periods was carried out to establish whether mergers lead to improved financial performance. The study established that merger was influencing profitability of banks. The study found that there was an increase in the t- value from 20.582 to 23.249, an indication that there was an increase in the return on equity after merger. The study concludes that mergers and acquisitions influence capital adequacy ratio positively. The study found that there was an increase in the t value for capital adequacy ratio pre-merger to post –merger from 19.064 to 21.764. The study also concludes that mergers and acquisitions influence long-term solvency ratio positively. The study found that there was a general increase in solvency of the companies as there was an increase in the t-value from the pre-merger to post –merger from 34.194 to 39.351, there was an increase in the mean difference from 84.25 to 92.25. The study recommends that those firms facing constraints on the market should consolidate their energies by resorting to merger/acquisition so as to expand their profitability as the merger/acquisition is not just for the best interest of the managers but also shareholders as it leads to an increase in shareholders’ wealth as opposed to each financial institution operating separately on its own.
- EFFECT OF CAPITAL STRUCTURE ON PERFORMANCE OF MICROFINANCEINSTITUTIONS: A CASE OF DEPOSIT TAKING MICROFINANCE INSTITUTIONS
Author: Onyinkwa Steve Omare
Abstract: Most DTMFIs in Kenya started off as NGOs and had built significant supply side competencies, as such, funding structure had no relevance. However, with growth and commercialization, MFIs are spinned off to become fully independent, the puzzle of funding structure that will ensure sustainability and profitability becomes relevant. The main objective of this study was to investigate on the effect of capital structure on the performance of microfinance institutions with a case of taking microfinance institutions. The study also sought to determine the effect of debt to equity ratio, debt to asset ratio, total debt ratio and customer deposits on the performance of microfinance institutions in Kenya. This study used a descriptive research design. The target population for this study constituted of 8 Deposit Taking Microfinance institutions in Kenya. Census method was used to select all the 8 DTMs in Kenya. This study used cross-sectional data, where all the MFIs were observed at the same point of time (2010- 2014). The research concentrated on secondary data using annual reports of the relevant Deposit Taking Microfinance institutions. The study made use of both descriptive and inferential statistics. In relation to descriptive statistics the study used frequency distributions, percentages, measures of central tendency (mean) and measures dispersion (Standard deviation) to summarize the data. The study also used correlation and multivariate regression analysis to examine the magnitude of the influence of the independent variable on the respective dependent variables. From the results, the study found that there is a positive relationship between debt to equity ratio and the performance of microfinance institutions in Kenya. The study also established that debt to asset ratio, total debt and customer deposits and the performance of microfinance institutions in Kenya. The study also found portfolio at risk influences the performance of microfinance institutions negatively. The study recommends the development of appropriate policies to enable MFIs to have access to debt to enhance their operations. In addition, the Nairobi Security Exchange should have a look at their listing requirements and work towards designing mechanisms that would enable MFIs to get listed and to offer them the opportunity to access equity capital.
- THE EFFECTS OF SACCOS’ REGULATIONS ON THE PERFORMANCE OF SAVINGS AND CREDIT SOCIETIES (SACCOS) IN KENYA: ACASE OF SACCOS IN NAIROBI
Authors: John Kirika Kamau, Dr. Wario Guyo
Abstract: Cases of mismanagement and corruption have been reported as the main challenges facing cooperative movements in Kenya. This prompted the establishment of Sacco Societies Regulatory Authority. Since the establishment of SASRA, the performance of SACCOs has been improving (MOCD & M 2012), but there is no study that has been done on the effects of regulations on the performance of SACCOs. This study therefore sought to determine the effects of SACCOs’ regulations on the financial performance of savings and credit societies (SACCOs) in Kenya. The study also sought to find out the effects of SACCOs regulation on the share capital, liquidity position and dividends of SACCOs in Kenya. The target population of this study was therefore 170 respondents. The sample size of this study was 34 respondents. The study used primary data which was collected by use of questionnaires. Data was analyzed using descriptive statistics. In addition to measures of central tendencies (mean), measures of dispersion (standard deviation and coefficient of variation) and graphs was used to tabulate the information. Correlation analysis was also used to describe the degree to which one variable is linearly related to another. The study established that there is a positive correlation between Saccos regulation and Share capital with a coefficient of 0.058, with pvalue of 0.020 which significant at α = 5%. The study also found that there is a positive correlation between liquidity position and Saccos regulation where the correlation coefficient is 0.64 and a p-value of 0.027 which significant at α = 5%. The study further concludes that there is a positive association between dividends and Saccos regulation where the correlation coefficient is 0.92, with a p-value of 0.025. The study recommends that SASRA should review its regulations so as to safeguard the dividends of the stakeholders, Membership regulations and controlling liquidity in SACCOs.
Abstract: The purpose of this study is to establish the effects of strategic planning on small and medium enterprises performance in Eastliegh Area. The study also sought to establish the effect of mission statement and goal setting on small and medium enterprises performance in Eastliegh Area. Further, the study sought to assess the effect of the environmental scan on small and medium enterprises performance and to examine whether the communication influences the performance of small and medium enterprises in Eastliegh Area. This research problem can best be studied through the use of a descriptive research design. The target population of this study was therefore 721 member of Eastleigh business Association. The sampling frame of this study included hotels, clothes and textiles, electronics, utensils, general shops, hardwares, bookshops, pharmacies and clinics, transport, supermarkets, motor vehicle spares, Cybercafe, insurance and brokerage services, car dealership and petrol stations. Stratified random sampling was used to select 20% of the target population. The sample size of this study was therefore 142 respondents. Structured questionnaires were used in this study to collect data. The questionnaires were administered by use of a drop off and pick up later method to the sampled respondents. Data analysis was done after data collection. The quantitative data in this research was analyzed by descriptive statistics and inferential statistics using Statistical Package for Social Sciences (SPSS version 20). Descriptive statistics included measures of central tendencies (mean), measures of dispersion (standard deviation), frequencies and percentages. Data was then presented in tables, charts and graphs. Content analysis was used in processing qualitative data and results were presented in prose form. The study also used multivariate regression analysis to establish the relationship between the dependent variable and dependent variables. The study found that companies that are better performing have better, stronger and clearer vision and mission statements and that a mission statement affects financial performance in SMEs positively. The study concludes that there is a positive relationship between mission statement, goal setting, environmental scan and communication performance of small and medium enterprises. The study recommends that Eastleigh Business Association should ensure that each enterprise’s mission statement should be strong and clearer. The study recommends that mission statements of the individual small and medium enterprises be tailored to reflect their competitive nature and strategies.