EFFECT OF CAPITAL MARKET DEEPENING ON FINANCIAL PERFORMANCE OF LISTED COMMERCIAL BANKS IN KENYA
Abstract
The main objective of the study was to determine the relationship between capital market deepening and the financial performance of listed commercial banks in Kenya. The target population for the study was all commercial banks listed in the Nairobi Securities Exchange. Particularly, there were eleven (11) banks listed in the Nairobi securities exchange in Kenya as at 31st December 2017. The study used purely secondary data. Data on capital market capitalization and financial openness (FDI) was sourced from Central Bank of Kenya and Nairobi Securities Exchange while data on the banks’ financial performance was obtained from the published financial statements. The Statistical Package for Social Sciences computer software aided in the data analysis. The study found that capital market deepening is affected by four main determinants including market capitalization, market liquidity, stock market performance as well as financial openness. Results of the panel model analysis showed that the coefficient of determination R-Squared gave a value of 0.6296 which meant that 62.97% of the variations in performance of the listed commercial banks was explained by independent variables computed in the model. However, only market capitalization and financial openess were established to was statistically significant at 5% percent level with a P values of less than 0.05. The study therefore concluded that level and trends of capital market deepening witness in Kenya was largely accounted for by the fluctuations of these variables. The study also concluded that the changes in the performance of the commercial banks evidenced by the trend patterns in the Return on Assets was largely attributed to the changes in these capital market determinants. The study recommended that the managerial staff in the commercial banks to highly prioritize these capital market determinants during the formulation of key organizational goals. They were recommended to come up with different but effective ways through which the commercial banks were able to utilize the capital market deepening for the prosperity and performance of the banks. The study further recommended the government and other regulatory bodies such as the CBK to come up with favourable policies which would promote financial liberalization to facilitate capital market deepening in country.
Keywords: Market Capitalization, Market Liquidity, Stock Market Turnover, Financial Openness
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DOI: http://dx.doi.org/10.61426/sjbcm.v5i4.921
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