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The Effect of Macroeconomic Variables on Share Prices of Firms

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The Effect of Macroeconomic Variables on Share Prices of Firms THE EFFECT OF MACROECONOMIC FACTORS ON FINANCIAL PERFORMANCE OF INVESTMENT BANKS IN KENYA JACKLINE ZAINA JOHN A RESEARCH PROJECT REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION, SCHOOL OF BUSINESS, UNIVERSITY OF NAIROBI NOVEMBER 2017 DECLARATION I declare that this research project report is my original work and has not been submitted for examination to any other university. Signature………………………… Date……………………… Jackline Zaina John REG No: D61/84426/2016 This research project report has been submitted for examination with my approval as the University Supervisor. Signature………………………… Date……………………… Mr. Dan Chirchir Signature………………………… Date……………………… Dr. Erastus Sifunjo ii ACKNOWLEDGEMENT My utmost gratitude goes to the Almighty God for enabling me complete this project successfully. I wish to extend my gratitude to my supervisors Mr. Dan Chirchir and Dr. Erastus Sifunjo, my research moderator Dr. Mirie Mwangi who were supportive and for all the advice that helped in improving the research work. I also wish to extend my gratitude to my parents and relatives for their prayers, support, sacrifices and encouragement throughout my studies. My gratitude also goes to my fellow colleague Ngumo King’ori at school who contributed towards completion of this project in one way or the other. Finally, I want to acknowledge the opportunity granted by the University of Nairobi to pursue my studies with the institution. It has been an enlightening journey. iii DEDICATION This project is dedicated to all those who supported and encouraged me throughout the research period. iv TABLE OF CONTENTS DECLARATION ................................................................................................................ ii ACKNOWLEDGEMENT ................................................................................................. iii DEDICATION ................................................................................................................... iv LIST OF ABBREVIATIONS ............................................................................................ xi ABSTRACT ...................................................................................................................... xii CHAPTER ONE ................................................................................................................. 1 INTRODUCTION .............................................................................................................. 1 1.1 Background of the Study ........................................................................................... 1 1.1.1 Macroeconomic Factors ..................................................................................... 2 1.1.2 Financial Performance ........................................................................................ 3 1.1.3 Effect of Macroeconomic Factors on Financial Performance ............................ 4 1.1.4 Investment Banks in Kenya ................................................................................ 6 1.2 Research Problem ...................................................................................................... 7 1.3 Research Objective .................................................................................................... 9 1.4 Value of the Study ................................................................................................... 10 CHAPTER TWO .............................................................................................................. 11 LITERATURE REVIEW ................................................................................................. 11 2.1 Introduction ............................................................................................................. 11 2.2 Theoretical Review ................................................................................................. 11 v 2.2.1 Fiscal Policy Theory ......................................................................................... 12 2.2.2 The Classical Theory ........................................................................................ 13 2.2.3 Monetary Theory of Inflation ........................................................................... 14 2.2.4 Purchasing Power Parity Theory (PPP) ............................................................ 15 2.3 Factors Affecting performance of Investment Banks ............................................. 16 2.3.1 The Size of the Investment Bank ...................................................................... 16 2.3.2 Capital Base ...................................................................................................... 17 2.3.3 Leverage ........................................................................................................... 18 2.3.4 Liquidity ........................................................................................................... 19 2.5 Summary of the Literature Review and Research Gap ........................................... 22 2.6 Conceptual Framework ........................................................................................... 23 CHAPTER THREE .......................................................................................................... 24 RESEARCH METHODOLOGY...................................................................................... 24 3.1 Introduction ............................................................................................................. 24 3.2 Research Design ...................................................................................................... 24 3.3 Population and Sample ............................................................................................ 25 3.4 Data Collection ........................................................................................................ 25 3.5 Validity and Reliability ........................................................................................... 26 3.6 Data Analysis .......................................................................................................... 27 3.6.1 Conceptual Model............................................................................................. 27 vi 3.6.2 Analytical Model .............................................................................................. 28 3.6.3 Measurement and Parameterization .................................................................. 29 3.6.4 Diagnostic Tests ............................................................................................... 30 3.7 Summary and Conclusion ....................................................................................... 31 CHAPTER FOUR ............................................................................................................. 32 DATA ANALYSIS, RESULTS AND DISCUSSION ..................................................... 32 4.1 Introduction ............................................................................................................. 32 4.2 Summary of Statistics.............................................................................................. 32 4.3 Results of Diagnostic tests ...................................................................................... 34 4.4 Results of Data Analysis ......................................................................................... 35 4.4.1 Results of Model Goodness of Fit .................................................................... 45 4.4.2 Results of ANOVA ........................................................................................... 45 4.4.3 Estimated Model ............................................................................................... 46 4.5 Discussion ............................................................................................................... 47 4.6 Summary ................................................................................................................. 48 CHAPTER FIVE .............................................................................................................. 50 SUMMARY, CONCLUSION AND RECOMMENDATION ......................................... 50 5.1 Introduction ............................................................................................................. 50 5.2 Summary of Key Findings ...................................................................................... 50 5.3 Conclusion ............................................................................................................... 52 vii 5.4 Recommendations for Policy .................................................................................. 53 5.5 Limitations of the Study .......................................................................................... 54 5.6 Suggestions for Further Study ................................................................................. 55 References ......................................................................................................................... 56 viii LIST OF TABLES Table 3.6.3 Variable Measurement …………………………………………………….29 Table4.2 Summary of Statistics.......................................................................................33 Table4.3 Model Summary………………………………………………………………35 Table4.4 Correlation Analysis Matrix …........................................................................43
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