Factors That Influence the Demand for Shares Listed in the Nairobi Securities Exchange

Abstract

The capital market authority has cited a low uptake of capital market products in Kenya. With regards to shares, the local investor participation in the Nairobi Securities Exchange is quite low at 33 percent of the total population meaning that there is a low demand for listed shares among Kenyan firms and households. This study sought to investigate the factors that contribute to the demand for shares in Kenya. The general objective of this study was to establish the factors that influence demand for shares listed in the Nairobi Securities Exchange. To meet this objective two specific objectives were derived form it the first being to establish the macroeconomic factors that influence the demand for shares in the NSE and the second being the company specific factors that influence the demand for shares in the NSE. Two macroeconomic variables were identified namely aggregate income level which was measured using real GDP this variables represents the financial state of the economy in terms of how good or badly off it is. Interest rate was the second macroeconomic variable that was deemed an inverse effect on investment and consequently demand for shares. Company specific variables used in the study were company performance that was measured using after tax profit and company assets. Investors’ behavior is greatly influenced by financial records of the company in terms of size and performance. Two models were estimated one that relates macroeconomic variables to share demand and the other that relates company specific variables to share demand. From the analysis, income level was found to have a positive and significant effect on demand for shares (β=0.7406, P-value=0.000), interest rate was also found to have a positive effect on demand for shares in Kenya (β=0.4517, P-value=0.000). On the other hand, company asset was found to have a positive effect on demand for shares (β=0.1468, P-value=0.000), whilst company performance was found to have positive and significant effect on demand for shares (β=0.50763, P-value=0.00). The study recommends that companies should strive to acquire assets as this is critical in boosting investor confidence that they will get their owner equity in the event that businesses go under. The government through the monetary policy committee should take into account the movement of shares demand and stock market performance in their duty of adjusting interest rates.