EFFECT OF INVESTMENT CRITERIA ON FINANCIAL PERFORMANCE OF PRIVATE-EQUITY FIRMS IN KENYA
Abstract
The purposive of this study was to identify the extent of the effect of investment criteria adopted by different Private-Equity firms in Kenya on their financial performance. The research employed a descriptive research design and census was applied whereby all the 62 private equity firms were selected. Primary data was collected using structured questionnaires which contained both open and closed ended questions and an interview guide. Pilot study was utilized for the purposes of ensuring that the data was both valid and reliable as well as eliminate any challenges in the data collection instrument that could hinder successful undertaking of the research. The primary data was analyzed for broader interpretations using descriptive statistical analysis and inferential data analysis. The regression analysis results indicated that 81.9% variability on financial performance of private equity firms could be accounted for by the target firm’s team characteristics, target firm’s market characteristics, target firm’s products and services characteristics, and financial considerations of the target firm. The beta coefficients for target firm’s team characteristics (B=0.356), target firm products and services characteristics (B=0.146), target firm’s market characteristics (B=0.324), and financial considerations of the target firm (B=0.192) were statistically significant at 5% significance level. This results obtained from the study contributed to both policy development and practice improvement on the investment via private equity and their financial performance especially in the Kenyan context, where understanding of the application of private equity arrangement was important due to high risks that these firms faced hence limiting their access to adequate funding from commercial banks and therefore PE arrangement might be a better option. At a target firm level, the study recommended that they engage in familiar industry to reduce problem associated with information symmetry since it would allow them to screen the venture for high returns and low risk. The study contributed to investor decision making literature and policy making.
Key words: Team Characteristics, Product and Services, Market Characteristics, Financial Consideration, Financial Performance
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DOI: http://dx.doi.org/10.61426/sjbcm.v5i4.928
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