dc.description.abstract | Theoretically, there has been a prove of a triangular causal association between the FDI
and the development of the stock market whereby FDI inflows is considered a wellspring
of progress in terms of technology and decreasing unemployment in most countries that
are still developing. This will then increase the production of goods and services which
ultimately result to increased GDP. Therefore, increased GDP means the growth of
economy which has a positive effect to the development of the stock market and the rise
of share prices (Adam & Tweneboah, 2009). This study sought to determine the effect of
foreign direct investment inflows on stock market development in Kenya. The
independent variable was FDI as measured by annual FDI inflows into the country as a
percentage of GDP. The control variables were economic growth as measured by GDP on
an annual basis, interest rate as measured by CBK annual lending rate, inflation rates as
measured by annual CPI and exchange rates as measured by annual exchange rate
between KSH and USD. Stock market development was the dependent variable which
the study sought to explain and it was measured by market capitalization as a percentage
of GDP. Secondary data was collected for a period of 30 years (1987 to 2016) on an
annual basis. The study employed a descriptive research design and a multiple linear
regression model was used to analyze the relationship between the variables. Statistical
package for social sciences version 21 was used for data analysis purposes. The results of
the study produced R-square value of 0.357 which means that about 35.7 percent of the
variation in stock market development in Kenya can be explained by the five selected
independent variables while 64.3 percent in the variation was associated with other
factors not covered in this research. The study also found that the independent variables
had a strong correlation with dividend payout ratio. ANOVA results show that the F
statistic was significant. Therefore the model was fit to explain stock market development
in Kenya. The results further revealed that individually, FDI inflows, economic growth,
interest rates, exchange rates and inflation were statistically insignificant determinants of
stock market development in Kenya. This study recommended that policy makers should
come up with policies that will contribute to fastening the development of the Kenyan
stock market as it is believed to have a direct relationship with economic growth in the
country. | en_US |