The relationship between market risk management tools and performance of investment firms in Kenya
Abstract
For effective implementation of risk management methodologies and practices within firms, it is
crucial for organizations it identify and understand the key factors that influence success of
market risk management initiatives as they have profound effects on firm performance. The
objective of this study was to determine the relationship between market risk management tools
and firm performance with a particular emphasis on investment firms in Kenya. A descriptive
design study was used and a population of 26 firms targeted of which 19 responded. The study
used both primary and secondary data. Primary data was sourced via a questionnaire sent to
respective firms whereas secondary data was sourced from the investment firms issued financial
reports. Regression analysis, was used to determine the strength of the model through ANOVA
by use of significance of T-statistics and F statistics at 5% level as well as using coefficient of
determination (R2). From the various components of risk management, the results reveal that risk
management has a statistically significant relationship with financial performance. This is
indicated by organizational culture, the link between risk management and organizational
mission and objectives, determining the risk appetite, risk tolerance and risk treatment measures
and linking risk management and strategic objectives. The study results also show that risk
management tools have no statistically significant relationship with financial performance. From
the findings, the researcher recommends that the Capital Markets Authority ensures that all
players in the market align their risk management policy to their organizational culture to ensure
all employees are aware of the risk management policies. The study further recommends that
N.S.E and C.MA impress upon market players to have active teams within their structures to
support the risk identification functions, which will be key to developing and implementing an
essential risk management policy. Further the study recommends the setting up of key
performance indicators by firms which can be used to gauge the performance of risk
management policies owing to the effectiveness of key performance indicators in enhancing the
performance of investment firms.
Publisher
University of Nairobi