Determinants of Share Returns of Commercial Banks Listed at Nairobi Securities Exchange

Abstract

The objective of the study was to establish the determinants of share returns of the listed commercial banks in Kenya. The study period was nine years (2012-2017). The data collected was analysed using both descriptive statistics (means and standard deviations) and inferential statistics (correlation and regression) with the aid of Statistical Package for Social Sciences (SPSS). Both Kolmogorov-Smirnov and Shapiro-Wilk tests recorded p-values that were greater than 0.05. The implication of this was that the study used secondary data that was sourced from a normally distributed population. The data could therefore be used to carry out inferential analysis such as regression and Pearson correlation. Multi-collinearity tests recorded VIF values of less than 3 implying that there was no multi-collinearity among the independent variables. This implied that inflation, dividend policy, financial performance, capital adequacy, size of the firm and corporate governance could be used as determinants of commercial banks share returns. The study concluded that there is a relationship between share returns of commercial banks listed at the NSE and the independent variables (inflation, dividend policy, financial performance, capital adequacy, size of the firm and corporate governance). The study also concludes that inflation, dividend policy, financial performance, capital adequacy, size of the firm and corporate governance explains 16.2% of the total variance in the share returns of the commercial banks listed at the NSE. The study also concluded that inflation, dividend policy, capital adequacy and corporate governance affects share returns of listed commercial banks negatively while financial performance and firm size affects share returns positively. The effect of firm size was found to influence share returns in a statistically significant manner. The study established that inflation, dividend policy, capital adequacy and corporate governance affects share returns of listed commercial banks negatively. The study recommended that the government should come up with appropriate fiscal policies for cushioning investors from making losses due to high cost of living as was measured using inflation rate. The management of commercial banks should carry out more extensive studies to establish the actual impact of dividend policy, capital adequacy and corporate governance affects as they were found to influence share returns negatively. Financial performance and firm size was found to influence share returns positively. The effect of firm size was found to influence share returns in a statistically significant manner. The management and shareholders of the commercial banks should be steadfast in improving the financial performance of their banks as well as increasing the size of banks in terms of assets. This will allow investors to profit from investing in the banks stocks.