The Relationship Between the Pension Asset Value and the Market Capitalization of Companies Listed at the Nairobi Securities Exchange

Abstract

This study aimed at establishing the relationship between pension asset value and the Nairobi Securities Exchange stock market capitalization. The capitalization of a stock market is determined by a number of factors including stock market size, share market turnover, and total value of traded shares and bonds. The study sought to investigate the relationship between RBA asset value, stock market size, share market turnover, and total value of shares traded at the Nairobi Securities Exchange. There has not been a lot of work done on the relationship between stock market capitalization and the asset value of pension funds in Kenya. Given the Kenyan stock market has made various strides in improving some of the aspects that are deemed to result in the development of the stock market which has seen an increase in the number of listed firms on the bourse and also the improvement of regulatory laws that govern trading and disclosures. The study therefore use the explanatory and descriptive design on data collected from all the 68 firms listed at the Nairobi Securities Exchange to establish the relationship between RBA asset value and determinants of stock market capitalization for the period between 2013-2017. The results showed a strong positive relationship between RBA asset value and stock market capitalization. The results found that from the size variables, stock market size (SMS) has a significant positive effect on RBA asset value, which means stock market size is a good predictor of the growth of listed firms and companies. This means the ability of the stock market to increase listing contributes to better mobilization of savings that in turn influences asset portfolio of the listed firms. The liquidity variables were share market turnover and total value traded. From the regression results the share market turnover was found to have a significant positive effect on RBA asset value. The total value traded was also found to have a significant positive relationship with RBA asset value, implying that the two variables are good predictors of RBA asset value for all companies listed at the NSE. The liquidity variables are important determinants of RBA asset value since they indicate the efficiency of the market to mobilize the savings on an economy wide basis. The share market turnover and total value traded have significant positive relation with RBA asset value meaning the capital market is able to efficiently allocate savings from surplus units to more productive enterprises.