The relationship between capital investments and the financial performance of commercial banks in Kenya

Abstract

This study sought to determine the relationship between Capital investments and financial performance among Commercial Banks in Kenya. The research methodology used was a Census survey design and the population of study was all Commercial Banks in Kenya. Secondary data collected was edited for accuracy, uniformity, consistency and completeness and arranged to enable coding and tabulation for final analysis. The study also used multiple linear regressions to analyse the data. The study found out that a there is indeed a positive relationship between capital investments and financial performance. Various variables were used to explain financial performance namely profitability, return on investments, cash flows and other variables. Cash flows was the main variable explaining financial performance. Return on Capital Employed was the least explanatory variable since the relationship with financial performance was week. Return on assets ratio, return on investments ratio, cash ratio and gearing ratios were also considered in explaining the dependent variable. As a result, it was clear that most banks balance sheets contained a significant level of capital investments. The study recommends that Commercial Banks should put more emphasis on investment and project appraisal for a proper cost benefit analysis and further research studies should be conducted on long-term and short term capital investments for the better option to be selected which maximizes the shareholders’ value.