The Impact of Commercial Paper Uptake on the Nairobi Securities Exchange

Abstract

The purpose of this paper is to investigate the impact of commercial paper uptake on the growth of the Nairobi Securities Exchange. The commercial paper market began a rapid growth in the 1970’s and was followed by the growth of the bond market in the 1980’s and 1990’s.It was however seen as having reduced the role of banks in providing credit to large businesses. Commercial Paper made its debut in the Kenyan market back in 1994. The research design used in this study was the descriptive method. This method is preferred because it allows for the prudent comparison of the research findings. The population of interest comprises of the eleven firms that have issued commercial paper in the past three years with data collected on a quarterly basis. Secondary data was used in this study. This was collected from the eleven firms that have issue commercial paper in the Kenyan market within the period of this study. The study found out that the number of commercial paper issued, the approved amount of commercial paper and the outstanding amount of commercial paper are affected by the share volumes trades, equity turnover as well as the market capitalisation. The study also found that most investors in the commercial paper market purchase the paper at issuance and hold it until maturity. Hence, there is little trading of commercial paper in secondary markets. As a result, issuers usually finance the repayment of maturing commercial paper with newly issued commercial paper. However, the need to roll over maturing commercial paper generates the risk that investors may not be willing to finance maturing commercial paper.