The Effect of Investment Strategies on the Value of Commercial Banks in Kenya

Abstract

The banking industry is so dynamic and competitive. A total of 10 banks control the entire banking industry accounting for about 52.39 percent in market share. Although limited number of banks generate huge amount of profits, stability of the whole banking system in Kenya has been a challenge. This is evidenced by steps to place some of these institutions like Imperial and Chase under receivership. The concerns about financial performance of Kenyan commercial banks have raised attention by policy makers with regard to portfolio management. Thus, the motive of this study was to bring out the link between investment strategies and value of Kenyan banks. By leveraging descriptive research design with a focus on 42 banks, census was embraced. Information was sought from first hand and auxiliary sources and means, correlation and regression supported the processing of the information. SPSS version 24 helped in analysis and tables were utilized during presentation. It was established that although commercial banks in Kenya had embraced active investment strategy (M=3.71), passive investment strategy to a high extent (M=3.68), ladder investment strategy (M=3.63) to a high extent, only active investment strategy (β=.061, p<0.05) and passive investment strategy (β=.042, p<0.05) were significant. The study concludes that investment strategies have significant effect on firm valued controlled by size. Among the recommendations was that finance and treasury managers of the respective commercial banks in Kenya balance between active and passive investment strategies in order to enhance the value of their banks. Shareholders and investors of the commercial banks in Kenya should regularly observe the trends and remain relevantly informed on how the value of their banks remains growing through maximization of the wealth. The board of directors of the commercial banks in Kenya should carefully play their oversight role on behalf of the shareholders to ensure that investment strategies put in place by the management are geared towards maximization of the shareholder wealth.