The Relationship Between Capital Budgeting Techniques and Financial Performance of Banks Listed at the Nairobi Securities Exchange
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Date
2013Author
Mutinda, Joshuah K
Type
ThesisLanguage
enMetadata
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This study overall agenda was to examine the capital budgeting techniques used in investment
appraisal among banks listed in the Nairobi Securities Exchange. It sought out to establish the
techniques of capital budgeting specifically used by the banks listed at the Nairobi Securities
Exchange to undertake their firm’s investments and also to establish the relationship between the
applied capital budgeting techniques and the financial performance of banks listed in the Nairobi
Securities Exchange. The objective of this study arose due to the inconsistent research findings
both elsewhere and in Kenya as well as the banking sector being an important industry in the
determination of the Kenyan economy. The research adopted a correlational cross-sectional
survey research design which is best suited for explaining or exploring the existence of two or
more variables at a given point in time. The population of the study consisted of all the ten banks
listed at the Nairobi Securities Exchange. Data was collected from the primary sources which
comprised of the questionnaires administered to the officers directly involved in capital
budgeting at the banks as well the secondary sources which comprised of the data derived from
the published accounts of the banks. The data was analyzed using the regression analysis model
to test the effect of the capital budgeting techniques on the financial performance of the banks.
The study found out that all of the four capital budgeting techniques researched on; payback
period, net present value, accounting rate of return and internal rate of return were being used by
banks listed in the Nairobi Securities Exchange and results depicted that there was no correlation
between the financial performance of banks and the capital budgeting techniques employed. The
study concluded that payback period, net present value, accounting rate of return and internal
rate of return capital budgeting techniques were all adopted by the banks listed at the Nairobi
Securities Exchange and that there was no significant relationship between the capital budgeting
techniques employed and the financial performance of the same. The study recommends staff
awareness trainings on the investment appraisal techniques employed by the firm(s) be done
regularly so as to properly put them to use as well as more trainings pertaining specifically to the
management on the financial literacy of banks. The study suggests further research be conducted
on other sectors across the Kenyan market to establish whether the results obtained were
homogeneous as well as using a different financial performance variable(s) to test the same
relationship. Researchers could also in future endeavor to use larger samples than the one used in
this study to depict whether the results established would hold or differ as a result of expanding
the sample size.
Publisher
University of Nairobi, School of Business