RELATIONSHIP BETWEEN CORPORATE LIQUIDITY

AND INVESTMENTS OF COMPANIES LISTED AT NAIROBI

SECURITIES EXCHANGE

BY

FREDRICK MUHUL RAONGO

A RESEARCH PROJECT SUBMITTED IN PARTIAL

FULFILMENT OF THE REQUIREMENTS FOR AWARD OF THE

DEGREE OF MASTER OF BUSINESS ADMINISTRATION,

UNIVERSITY OF NAIROBI

OCTOBER 2015
 DECLARATION

This research project is my original work and has not been submitted for examination in

any other University.

Signature: ........................................ Date: ............................................

Fredrick Muhul Raongo REG NO: D61/7079/2006

This research project has been submitted for examination with my approval as a

University supervisor.

Signature: .......................................... Date: ...................................

Dr. Duncan Elly Ochieng’, PhD, CFA

Department of Finance and Accounting

School of Business, University of Nairobi

ii
 DEDICATION
I dedicate this work to my family and especially to my late grandmother Hellen Odhoch

Ojiro and all those who supported me in the completion of this project.

iii
 ACKNOWLEDGEMENT

I take this opportunity to give thanks to the Almighty God for seeing me through the

completion of this project.

The work of carrying out this investigation needed adequate preparation and therefore

called for collective responsibility of many personalities. The production of this research

document has been made possible by invaluable support of many people. While it is not

possible to name all of them, recognition has been given to a few. I am greatly indebted

to my supervisor Dr. Duncan Elly for his professional guidance, advice and unlimited

patience in reading through my drafts and suggesting workable alternatives, my profound

appreciation to you.

The entire the NSE cannot pass without my special acknowledgement for taking time off

their busy schedule to provide me with all the information I needed in the course of the

research. Without their immense cooperation I would not have reached this far.

I would also wish to extend my sincere gratitude to all the MBA students, staff, lecturers

and the entire University of Nairobi fraternity for changing me from what I was to what I

am.

Thank you all. May the Almighty God bless you abundantly.

iv
 TABLE OF CONTENTS

DECLARATION............................................................................................................... ii
DEDICATION.................................................................................................................. iii
ACKNOWLEDGEMENT ............................................................................................... iv
TABLE OF CONTENTS ..................................................................................................v
LIST OF TABLES .......................................................................................................... vii
ABBREVIATIONS & ACRONYMS ........................................................................... viii
ABSTRACT ...................................................................................................................... ix
CHAPTER ONE ................................................................................................................1
INTRODUCTION..............................................................................................................1
1.1 Background to the Study ............................................................................................1
1.1.1 Investments of Companies ..................................................................................2
1.1.2 Corporate Liquidity .............................................................................................3
1.1.3 Relationship between Corporate Liquidity and Investments of Companies .......4
1.1.4 Nairobi Securities Exchange ...............................................................................6
1.2 Research Problem ......................................................................................................8
1.3 Research Objective ..................................................................................................10
1.4 Value of the Study ...................................................................................................10
CHAPTER TWO .............................................................................................................12
LITERATURE REVIEW ...............................................................................................12
2.1 Introduction ..............................................................................................................12
2.2 Theoretical Review ..................................................................................................12
2.2.1 Liquidity Preference Theory .............................................................................12
2.2.2 Signaling Theory...............................................................................................14
2.2.3 Trade off Theory of Liquidity ...........................................................................15
2.3 Determinants of Corporate Investments ..................................................................15
2.3.1 Liquidity Index..................................................................................................16
2.3.2 Leverage ............................................................................................................16
2.3.3 Firm Size ...........................................................................................................17
2.4 Empirical Studies .....................................................................................................18
2.5 Summary of Literature Review ................................................................................21
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CHAPTER THREE .........................................................................................................23
RESEARCH METHODOLOGY ...................................................................................23
3.1 Introduction ..............................................................................................................23
3.2 Research Design.......................................................................................................23
3.3 Target Population .....................................................................................................23
3.4 Data Collection ........................................................................................................24
3.5 Data Analysis and Presentation ...............................................................................24
3.5.1 Analytical Model ..............................................................................................24
3.5.2 Test of Significance ..........................................................................................25
CHAPTER FOUR ............................................................................................................27
DATA ANALYSIS, RESULTS AND DISCUSSION....................................................27
4.1 Introduction ..............................................................................................................27
4.2 Descriptive Statistics ................................................................................................27
4.3 Correlation Analysis ................................................................................................28
4.4 Multicollinearity Test...............................................................................................29
4.5 Regression Analysis .................................................................................................30
4.6 Summary and Interpretation of Findings .................................................................33
CHAPTER FIVE .............................................................................................................36
SUMMARY, CONCLUSION AND RECOMMENDATIONS ...................................36
5.1 Summary ..................................................................................................................36
5.2 Conclusions ..............................................................................................................37
5.3 Limitations of the Study...........................................................................................38
5.4 Recommendations for Policy and Practice ..............................................................39
5.5 Suggestions for Further Studies ...............................................................................40
REFERENCES .................................................................................................................42
APPENDICES ..................................................................................................................47
Appendix I: Data Collection Sheet ................................................................................47
Appendix II: List of firms listed in the NSE ..................................................................48
Appendix III: research data ............................................................................................52

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 LIST OF TABLES
Table 4. 1: Descriptive Statistics of the Study Variables.................................................. 27
Table 4. 2: Correlation matrix ........................................................................................... 28
Table 4. 3: Multicollinearity Statistics .............................................................................. 29
Table 4. 4: Results of multiple regressions between investments and the combined effect
of the selected predictors ................................................................................ 30
Table 4. 5: Summary of One-Way ANOVA results of the regression analysis between
investments and predictor variables ................................................................ 31
Table 4. 6: Regression coefficients of the relationship between investments and the three
predictive variables ......................................................................................... 32

vii
 ABBREVIATIONS & ACRONYMS

ANOVA Analysis Of Variance

CBK Central Bank of Kenya

CMA Capital Markets Authority

GDP Gross Domestic Product

NSE Nairobi Securities Exchange

viii
 ABSTRACT
A company must preserve adequate amount of liquidity to meet its daily obligations, but
liquidity in excess of what is adequately required by the company to finance it operations
may be counter-productive. The optimal investment in liquidity increases the cost of
external financing, the variance of the future cash flows, and the return on future
investment opportunities, while is decreases the difference between the firm’s physical
assets and the liquid assets. In most cases investors demand a premium for securities that
have a longer maturity period, this entail a high risk since most investors prefer to hold
cash which is less risky. The study sought to establish the relationship between corporate
liquidity and investments of companies listed in Nairobi Securities Exchange. A
descriptive research design was applied in this study. The population of interest in this
study consisted of 54 firms quoted in the Nairobi Securities Exchange. In this study
emphasis was given to secondary data which was obtained from the financial statements
covering the years 2010-2014 for companies investments, current assets, current liability,
companies’ debts/equity and the total assets of which are publicly available. In order to
test the relationship between the variables, the inferential tests including regression
analysis was used to determine the effect of corporate liquidity on investments. The study
found that the liquidity, leverage and firm size contribute to 66.5% of investments and
that a unit increase in liquidity leads to a 0.098 increase in investments. The study
concludes that corporate liquidity affects the level of investments of companies listed in
the NSE. The conclusion is that corporate liquidity has a positive and significant effect on
investments of companies listed in the NSE for the period of this study. The study
recommends that adequate funding should be directed towards investments for optimum
structure of the liquidity, and to make a proper balance between liquidity and
investments. The study suggests that research should be extended to none listed
companies and also for longer period of time. Inclusion of none listed companies may
help in elimination of any biasness that may be associated with listed companies as listed
companies are also regulated by Capital Market Authority.

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 CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

A company must preserve adequate amount of liquidity to meet its daily obligations, but

liquidity in excess of what is adequately required by the company to finance it operations

may be counter-productive. The liquidity requirement of firms differs depending on the

circumstances of the company (Pandy, 2005). The importance of corporate liquidity

management as it affects company’s investments in today’s business cannot be over

emphasized. Proper management of working capital is required in maintaining liquidity

in day-to-day operation to ensure the smooth running and meeting obligation as they fall

due (Eljelly, 2004).

Nasr and Raheman (2007) posited that liquidity plays a significant role in the successful

functioning of nonfinancial companies hence, a company should ensure that it does not

suffer from lack-of or excess liquidity to meet its short-term compulsions. A study of

relationship between liquidity and investments is of major importance to both the internal

and the external analysts because of its close relationship with day-to-day operations of a

business. Dilemma in liquidity and investments management is to achieve desired

tradeoff between liquidity and investments (Nasr & Raheman, 2007). Liquidity

requirement of a firm depends on the peculiar nature of the firm and there is no specific

rule on determining the optimal level of liquidity that a company can maintain in order to

ensure positive impact on its investments.

1.1.1 Investments of Companies

Investment and its related issues are one of the most significant factors which affect the

economy of every country. Investment is one of the most important macroeconomic

variables because the capacity of production of any economy depends not only on labour

but also on the capital available to produce goods and services (Grabel, 2005).

Investment is the loyalty of money or capital to purchase financial instruments and other

assets in order to receive profitable returns in the form of interest as well as the positive

reception of the value of the instruments. Since investment is a factor for production,

occupation, and mobilization of economic wheels of every country, it is inevitable.

Investment is driven by three basic needs: income, capital preservation and capital

appreciation. For income, investments can be made in the hope of providing future

income (Owolabi & Obiakor, 2011).

Usually investment companies want income to begin in the immediate future. For capital

preservation, investments are made to preserve capital, or the original value. These are

generally conservative investments. In most emerging markets financial liberalization has

been accompanied by sharp fluctuations in key macro and micro prices together with

increasing uncertainty. Consumption volatility, for example, has increased in emerging

markets during the 1990s (Kose, 2003). Likewise, capital flows to developing countries

in the current generation compared to late 70s and 80s are found to be ‘high, rising and

unpredictable (Gabriele et al., 2007). The existing evidence also shows an increase in the

volatility of stock markets as well as sales and earnings of firms in both developed and

developing country markets for the last three decades (Grabel, 2005; Comin & Mulani,

2006).

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1.1.2 Corporate Liquidity

Corporate liquidity refers to the degree to which a corporation’s assets or security can be

sold or bought in the market without affecting the asset's price. Liquidity is characterized

by a high level of trading activity. It measures how much cash a company has and how

easily it is able to pay its debt. Assets in any firm are categorized into various classes.

Liquid assets such as cash, cash equivalents and marketable securities constitute liquid

assets. Liquid assets constitute a significant portion of a firm’s total asset. Financial

managers pay due attention to the measurement and management of corporate liquidity

failure to which may lead to severe shortage of liquidity leading to inability to meet its

short and medium term obligations as and when they become due hence financial distress

(Dittmaret, 2003).

The optimal amount of liquidity is determined by a tradeoff between the low return

earned on liquid assets and the benefit of minimizing the need for costly external

financing. The optimal investment in liquidity increases in the cost of external financing,

the variance of the future cash flows, and the return on future investment opportunities,

while it is decreases in the return difference between the firm’s physical assets and the

liquid assets (Owolabi & Obiakor, 2011).

Corporate liquidity plays a fundamental role in assisting the firm to meet its shorter and

medium term obligations as and when they arise. This enables listed firms to manage

working capital and optimize the surplus funds all in a rapidly changing regulatory

environment. Diversification of unrelated businesses of firms has significantly reduced

3
the amount corporate liquidity that most of these firms hold since more money is invested

in different investments (Ngugi & Njiru, 2005).

In most cases investors demand a premium for securities that have a longer maturity

period, this entail a high risk since most investors prefer to hold cash which is less risky.

Liquidity preference theory indicates that when an investment is more liquid, then it is

easier for an investor to easily sell it at its full value this is because interest rates are

volatile in the short term as compared to the long-term (Yego, 2008). The premium on

short versus medium term securities will be higher than the premium on medium against

long-term securities (Raheman & Nasr, 2007). The proponents of this theory note that

most people value money for both transactionary motive and as a store measure of value

(Masaku, 2010). Most people opt to save their finances to earn interest in order to spend

it now as a precaution. Conversely, when the rates of interest increases the market will be

willing to hold less money for these purposes in order to secure a profit (Bhunia, 2010).

1.1.3 Relationship between Corporate Liquidity and Investments of Companies

Today, how corporate liquidity is managed is one of the significant and essential issues in

big companies. Also, different models have been provided by financial theorists to submit

and determine the optimum structure of the liquidity, and to make a proper balance

between liquidity and investments. Most of the financial managers of big companies

decide to spend surplus funds on initiation and investment of profitable projects; of

course, the correct recognition of centers and investment opportunities are important

which may be different, according to the type of company and the ideology of senior

managers of the company. In fact, it should be mentioned that different companies have

4
different attitudes toward managing liquidity in the company so that for continuation of a

huge company, its financial managers may prefer to spend its surplus funds on investing

the profitable projects. This will bring a more profitable outcome for the company or vice

versa managers (Eynabadi, 2003). In any case, all the huge companies should form

proper policies for their existing liquidity, according to their companies’ type and

structure to guarantee the continuation of their companies’ glorious life.

Firms with greater liquidity have lower investment costs, thus using more funding

through the issue of shares (Butler et al., 2005). In this manner, firms with higher

liquidity tend to have lower levels of leverage. Moreover, Lesmond et al (2008) find

firms that increase their level of leverage increase the bid-ask spread (reduced liquidity).

Similarly, Bharath et al. (2009) expressed that firms that use a higher percentage of

financing through debt, have lower liquidity in the stock market which in turn leads to

low investments. According to Fang et al. (2009), firms with greater liquidity are better

placed to invest more compared to companies with low liquidity and greater variance in

the predictions of stock market analysts predicts greater actual investment and equity

issuance.

According to Polk and Sapienza (2009), investment is larger when the shares are

overvalued; using discretionary accruals as a proxy for mispricing hence increase in

liquidity leads to a higher level of institutional ownership by transient and quasi-indexers

which reduces Innovation. Munoz (2013) in his article named ‘liquidity and investment

of company’ used financial leverage, Q-tobin and cash flow as control variables to

control other variables which are somehow effective on analysis of research issues

established that in companies with high level of trading volume in one period and

5
industry-based adjusted trading volume, the level of investment is high as well. So,

liquidity of stock market has a direct relationship with companies’ investment, and high

liquidity can result in more investments.

1.1.4 Nairobi Securities Exchange

The Nairobi Securities Exchange (NSE) as noted by Ngugi and Njiru (2005) is a

securities market that has been characterized by humble beginnings and has grown

considerably over time when Kenya was still a British colony. In 1954, the NSE was

comprised as a voluntary organization of stockbrokers enrolled under the Societies Act.

Trading of shares was restricted only to the resident of European community and

Africans and Asians were not permitted to deal in securities. In 1963, Kenya became

independent and Africans and Asians were permitted to deal in securities. In 1980, The

Kenyan Government saw the need to design and implement policy transformation to

promote the sustainability of economic growth with an efficient and steady financial

system.

In 1980, The Kenyan Government saw the need to design and implement policy

transformation to promote the sustainability of economic growth with an efficient and

steady financial system. In 1984, A Central Bank of Kenya (CBK) study, Development of

Money and Capital Markets in Kenya, which was known as a blueprint for structural

reforms in the financial markets helped the creation of a regulatory body (Ngugi,

Murinde & Green, 2003). Ngugi and Njiru (2005) also recorded that in July 2000, the

CDS Act was passed by Parliament and sanctioned by the President. The Capital Markets

Authority Act was amended and known as the Capital Markets Act. In August 2000, CFC

6
Financial Services, the first licensed dealer on the NSE, started its operations. Because of

the critical role in Kenyan economy and at large the East African Community, NSE

becomes an important reference for this study owing to variety of stocks traded in the

market.

However there are a number of reasons why listed firms in Kenya diversify their

portfolios. Large firms have excess resources, capabilities, and core competencies that

have multiple uses. Other listed firms experience diminishing growth prospects in present

industry. Most medium sized firms diversify their portfolios as a way of cost saving

opportunities in order to capture strategic fits and financial economies by spreading

business risk leveraging their brand name. This has been attributed by the turbulent

nature of the business environment that is characterized by risks and uncertainties (Hann,

Ogneva & Ozbas, 2010). Through diversification of unrelated businesses firms are able to

counter challenges of risks that might lead to financial losses as a result of relying on one

line of business.

According to Kamwaro (2013), corporate liquidity affects investment portfolio choice of

investment companies listed in the Nairobi Securities Exchange. Thus, there is need for

the management of investment companies to have solid organization structure,

organization structure to influence their corporate liquidity which impact on their

investment portfolio choice. Njure (2014) expressed that there is a weak positive

relationship between corporate liquidity and investment among the listed nonfinancial

companies in Kenya. However, Njure’s argument was only based on the nonfinancial

companies listed in the NSE and not to financial companies.

7
1.2 Research Problem

Liquidity management and investments are very important issues in the growth and

survival of business and the ability to handle the trade-off between the two is of great

concern for financial managers. Therefore, proper management of corporate liquidity

enables firms listed by Nairobi security exchange firms to meet their investment

obligations as and when they fall due. The importance of corporate liquidity is that it

enables most firms listed to be able to easily convert their assets into cash. Corporate

liquidity is one of the most essential tools in policy decisions that management of firms

has to make on a day to day basis. The decision made has great implications on the

investments of the firm because it involves a tradeoff between costs and benefits of

maintaining liquid cash. The significance of corporate liquidity of the firm includes its

ability to take advantage of any unexpected investment business opportunity

(Subramaniam, Tang, Yue & Zhou, 2011).

Management of corporate liquidity is one of the significant and essential issues in big

companies. Most of the financial managers of big companies decide to spend surplus

funds on initiation and investment of profitable projects and investment opportunities.

There is a trade-off between liquidity and profitability; gaining more of one ordinarily

means giving up some of the other. For example if a company’s balance sheet is listed in

order of liquidity with five items namely cash, marketable securities, accounts

receivables, inventory and fixed assets it can be observed that moving from cash to fixed

assets decreases liquidity. However, as you move from fixed assets to cash profitability

increases. In other words profitable investment for a company is normally its fixed assets

8
and the least profitable investment is cash. However, there is limited literature on the

relationship between corporate liquidity and investments.

The theoretical review on the relationship between liquidity and and investments is very

clear that a negative relationship is expected between the two variables. However

empirical evidence shows mixed results with some showing negative relationship and

others showing positive or no relationship. Kamath (1989) found liquidity affects

profitability negatively. The other studies, Deloof (2003), Eljelly (2004), Lazaridis &

Tryfonidis (2006), Raheman & Nasr (2007), Garcia-Teruel & Martinez-Solano (2007),

Mathuva (2009), Falope & Ajilore (2009) and Gill, Biger & Mathur (2010) empirically

examined the relationship between profitability and liquidity showed that there exists a

significant and negative relationship between them. However, the study conducted by

Lyroudi & Laziridis (2000), Sur, Biswas & Ganguly (2001) and Bardia (2004) found that

there was positive relationship between liquidity and profitability. Observers, economists

and academicians have pointed out that, there exists positive relationship between

corporate liquidity and investments of companies (Hann, Ogneva & Ozbas, 2010;

Shanken, 2005; Ross, 2008).

Locally, Njure (2014) investigated the relationship between liquidity and profitability of

nonfinancial companies listed in Nairobi Securities Exchange and established that there is

a weak positive relationship between corporate liquidity and investment among the listed

nonfinancial companies in Kenya, Kamwaro (2013) on the other hand investigated the

effect of the level of diversification on corporate liquidity for firms listed at the Nairobi

Securities Exchange and found that corporate liquidity affects investment portfolio choice

of investment companies listed in the Nairobi Securities Exchange and Karanja (2014)

9
investigated the effect of financial leverage on corporate investment of non financial

firms listed at the Nairobi securities exchange and found out that financial leverage has a

significant negative effect on corporate performance, and has a significant positive effect

on firm value. From the previous studies it is evident that limited research has been

carried out about the relationship between corporate liquidity and investments as none of

these studies focused on the relationship between corporate liquidity and investments of

companies listed in Nairobi Securities Exchange. This study therefore seeks to fill this

gap by establishing the relationship between corporate liquidity and investments of

companies listed in Nairobi Securities Exchange.

1.3 Research Objective

The objective of the study was to establish the relationship between corporate liquidity

and investments of companies listed in Nairobi Securities Exchange.

1.4 Value of the Study

The study will offer valuable contribution to theory and practice. First the study will add

value to the financial management field especially in the demanding concerns of

liquidity. It will also form the basis of further research by identifying the knowledge gap

that arises from this study. Further, the study will create forum for further discussions and

debate on corporate liquidity and investments of companies listed in Nairobi Securities

Exchange and investors thus making significant contribution by adding to the body of

knowledge and theory that already exist.

10
The paper will enable the investors to know the kind of information to be disclosed by

firms on the financial statements pertaining to liquidity and leverage. The conclusions

will also bridge the knowledge gap that exists in the market on financing and investing

decisions. The findings of this study will also make contributions to the existing

paradigm on investors’ behavior towards liquidity of a firm.

In addition the research will enable the policy makers to devise new standards in

establishing an appropriate level of liquidity for industries and come up with more

effective methods of managing liquidity levels sectors, markets and firms. In addition, the

research will shed light on importance of information distribution and development of the

capital market in order to reduce the level of market imperfection.

11
 CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

In this second chapter, relevant literature information that is related and consistent with

the objectives of the study is reviewed. Important issues and practical problems are

brought out and critically examined so as to determine the current facts. This section is

vital as it determines the information that link the current study with past studies and

what future studies will still need to explore so as to improve knowledge.

2.2 Theoretical Review

The study will be underpinned in liquidity preference theory, signaling theory and trade

off theory of liquidity.

2.2.1 Liquidity Preference Theory

Panico and Gauti (2001) developed liquidity preference theory and intimated the idea that

investors demand a premium for securities with longer maturities, which entail greater

risk, because they would prefer to hold cash, which entails less risk. The more liquid an

investment, the easier it is to sell quickly for its full value (Shanken, 2005). Because

interest rates are more volatile in the short term, the premium on short versus medium-

term securities will be greater than the premium on medium- versus long term securities.

In this connection we can usefully employ the ancient distinction between the use of

money for the transaction of current business and its use as a store of wealth. As regards

12
the first of these two uses, it is obvious that up to a point it is worthwhile to sacrifice a

certain amount of interest for the convenience of liquidity.

But, given that the rate of interest is never negative, why should anyone prefer to hold his

wealth in a form which yields little or no interest to holding it in a form which yields

interest (Shanken, 2005). The demand for money is an asset was theorized to depend on

the interest foregone by not holding bonds. Interest rates, he argues, cannot be a reward

for saving as such because, if a person hoards his savings in cash, keeping it under his

mattress say, he will receive no interest, although he has nevertheless refrained from

consuming all his current income. Instead of a reward for saving, interest, in the

Keynesian analysis, is a reward for parting with liquidity. According to Keynes, demand

for liquidity is determined by three motives namely, the transactions motive: people

prefer to have liquidity to assure basic transactions, for their income is not constantly

available (Ross, 1998).

The amount of liquidity demanded is determined by the level of income: the higher the

income, the more money demanded for carrying out increased spending. The

precautionary motive: people prefer to have liquidity in the case of social unexpected

problems that need unusual costs. The amount of money demanded for this purpose

increases as income increases. The third motive is the speculative motive; this motive

indicates that people retain liquidity to speculate that bond prices will fall. When the

interest rate decreases people demand more money to hold until the interest rate

increases, which would drive down the price of an existing bond to keep its yield in line

with the interest rate (Rosenberg, Reid & Lanstein, 2005).

13
2.2.2 Signaling Theory

Signaling Theory by Ross (1977) asserts that financial decisions made by the firm are

signals to potential investors meant to compensate for information asymmetry. These

signals are therefore intended to enable investors to make informed decisions concerning

company investment. Ross (1977) linked the notion of signaling to capital structure

theory and argue that since the management have information on the correct distribution

of the firm’s returns while outsiders don’t, the firm is likely to benefit if the firms

securities are overvalued and the converse is true. They also argue that managers can use

higher financial leverage to signal optimistic future for the company since debt capital

involves a contractual commitment to pay back both principal and interests and failure to

do so could result into bankruptcy which may further result into job losses. Hence,

additional debt in the firm’s capital structure may be interpreted as a positive signal about

a firm’s future.

Accordingly, retained earnings are considered first in the signaling model because they

are cheaper and are rarely affected by asymmetry of information. Second, debt is

considered next since it carries low asymmetry which serves as a monitoring device

against wasteful spending by the management. Finally, external equity is used as a last

option because of its adverse selection effect. The model also asserts that outside

investors can rationally discount the firm's liquidity when managers issue equity instead

of risk less debt. This is because of the perception that a firm only issues equity when in

financial trouble. In order to avoid this discount, managers avoid issuance of equity as

much as possible. The implication of the pecking order approach is that firms do not have

14
a target level of leverage and their actual level of debt essentially responds to the

difference between investment and retained earnings (Benito, 2003).

2.2.3 Trade off Theory of Liquidity

According to Jensen (1986) who developed the Trade off Theory of Liquidity pointed out

that under perfect capital market assumptions holding cash neither creates nor destroys

value. The firm can always raise funds from capital markets when funds are needed, there

are no transaction costs in raising these funds, and the funds can always be raised at a fair

price because the capital markets are assumed to be fully informed about the prospects of

the firm. The trade-off theory suggests that firms target an optimal level of liquidity to

balance the benefit and cost of holding cash.

The cost of holding cash includes low rate of return of these assets because of liquidity

premium and possibly tax disadvantage. The benefits of holding cash are in twofold: First

the firms save transaction costs to raise funds and do not need to liquidate assets to make

payments. Secondly the firm can use liquid assets to finance its activities and investment

if other sources of funding are not available or are extremely expensive. As theory, the

use of trade off model cannot be ignored, as it explains that, firms with high leverage

attracts high cost of servicing the debt thereby affecting its profitability and it becomes

difficult for them to raise funds through other sources (Jensen, 1986).

2.3 Determinants of Corporate Investments

This section focuses on the various determinants of corporate investments among listed

companies by focusing specifically on how liquidity index, leverage and the firm size

affect the corporate investments.

15
2.3.1 Liquidity Index

Liquidity index is one of the determinants of corporate liquidity, the assets held by a firm

the liquidity index will be measured using the amount of liquid assets cash and cash

equivalent, and receivables will be divided by the total assets held by the main company

(Padachi, 2006). From the diversification of unrelated businesses data, the total assets

(interest held) or investment held in other companies or businesses shall be divided by the

total assets held by the main company business (Owolabi, Obiakor and Okwu, 2011).

This will indicate the degree of diversification of unrelated businesses hence forms a

diversification of unrelated businesses index which is in form of a percentage; this will

provide a basis for determining the percentage of asset portfolio by a firm (Raheman &

Nasr, 2007). Pelg (2006) argues that in order to measure if a portfolio is diversified

enough, a technique is to push the assets correlation to 1.0 and compare the portfolio with

the historical assets correlation and the portfolio with the assets correlation equal to 1.0

(Santalo and Becerra, 2008).

2.3.2 Leverage

Leverage is a construct that has been widely studied. Many authors have studied leverage

and its determinants on investments in different countries using different techniques. This

has led to different outcomes and results. More recent research has focused on empirical

evidence of determinants of leverage and investigates different settings and conditions in

which leverage decisions occur. Aivazian et al. (2005) for Canada and Odit & Chittoo

(2008) for Mauritius found that leverage is negatively related to investment. However,

the results of the study by Bothwell, Cooley and Hall (1984) indicate that higher

leveraged firms (with relatively high liabilities) are more profitable. Evidently, the more

16
extensively firms use debts as the source of financing the higher its profits. An

explanation can be that more profitable firms have had easier access to debt financing and

do not need to rely exclusively on equity capital. Alternatively, it could be argued that

higher leveraged firms bear greater risks of bankruptcy and need to compensate

stakeholders with higher profits.

Previous studies revealed that managers cannot keep increasing the level of debt and that

debt can also serve as a protection mechanism not to overinvest as cash should be paid to

bondholders limiting the possibility of conducting wasteful activities and bondholders

have a possibility to evaluate management (Pawlina, 2010). This results in a negative

relationship between leverage and investment, because management is reluctant to pay

the required interest and principal which increased default. Underinvestment is expected

to occur in the presence of high growth opportunities as managers can only under invest

when there are growth opportunities. Furthermore management might be reluctant to pay

the cost of external capital (whether or not affected by information asymmetry) as risk of

default rises. This results in a negative relationship between leverage and investment

because debt limits investment spending due to the obligatory cost of capital and

increasing risk of default.

2.3.3 Firm Size

The role of firm size is considered as an important theme in the literature of the

investment activity. Recent evidence on the investment behavior of large and small firms

suggests the possibility that informational problems weigh more heavily on small firms.

In particular, there is evidence that investment by smaller firms is more sensitive to

17
factors that, in a world of perfect capital markets, are not expected to affect investment

(Pandy, 2005).

The firm size has attracted the attention of many researchers in other fields, too.

Concerning the financial economics, the sophisticated models are still unable to explain

the stock returns, which are exceptionally high for small firms, and this remains a

sustainable perplexity. Evaluate the small firms has proved to be a very difficult task.

This is why the small firms benefit of an important attention in most economics (Nasr &

Raheman, 2007). The existence of constraints in the investment activity caused by the

obstacles to the access of the external capital markets raises political aspects, especially if

these constraints are more important for small firms. Therefore, the impact of the firm

size on the investment constraints remains a matter of special interest. The small firms

are typically followed by analysts who have to prove the high degree of information

asymmetry between the internals of the firm and its externals. The small firms also face

high transaction costs. If these effects are economically significant, it is expected that

small firms use more internal sources (Dittmaret, 2003). The agency costs may be higher

for small firms. All these factors raise the costs of using external sources on small firms.

In addition, the firm size plays also a role in other fields. In order to check these findings,

we have checked the effect of the firm size on the investment through several studies that

were conducted on that subject (Owolabi & Obiakor, 2011).

2.4 Empirical Studies

A large body of has been done on corporate liquidity and investments. Eleswarapu and

Reinganum (2003) empirically examine the seasonal behaviour of the liquidity premium

18
in asset pricing and document a strong seasonal component in the association between

liquidity and stock returns. They build a model that helps to explain why increases in

liquidity predict lower subsequent returns in both firm level and aggregate data. The

model features a class of irrational investors, who under react to the information

contained in order flow, thereby boosting liquidity. In the presence of short sales

constraints, high liquidity is a symptom of the fact that the market is dominated by these

irrational investors, and hence is overvalued.

Aivazian et al (2005) investigated the impact of leverage on the firm’s investment

decisions using information on Canadian publicly traded companies. The study revealed a

negative relationship between leverage and investment. The negative effect was

significantly stronger for firms with low growth opportunities than those with high

growth opportunities. The results provided a support to agency theories of corporate

leverage, and especially the theory that has a disciplining role for firms with low growth

opportunities. In the study two alternative measures of leverage were used. The first

proxy of financial leverage was calculated by dividing book value of total liabilities by

book value of total assets, while the second proxy book value of long term debt was

divided by total assets. A sample of 1035 major Canadian industrial companies existing

at the end of 1999 covering the period 1982-1999 was selected.

A study by Zingales and Rajan (2005) found a statistical relationship between liquidity

and leverage. Liquidity is computed by dividing current assets by current liabilities.

Liquidity represents the capital amount that is available for use as expenditure or in

investment. It also indicates the ability of a firm to meet current liabilities as and when

19
they fall due. Excessive amount of current assets owned by a firm would perhaps increase

the chances of internal funding resulting in the relationship between leverage and equity.

Azimi, Arbabian and Khanmohammad (2015) conducted a study on the impact of the

company's liquidity on sensitivity of the investment -cash flow on the stock exchange

based on industry. This study was conducted in order to collect evidence on the effect of

liquidity on the sensitivity of the cash investment of companies listed in Tehran Stock

Exchange from 2006 to 2013. This research employed descriptive correlation and the

research methodology used was a post-event methodology. Combined data model

(panel) and GLS regression were also used to estimate data. The results show that the

liquidity has a positive effect on sensitivity of investment in the automotive and parts

manufacturing.

Locally, Koech (2012) investigated the relationship between liquidity and return of stock

at the Nairobi Securities Exchange. The objective of this study was to ascertain whether

there exists a relationship between liquidity and return of listed firms at the Nairobi

Securities Exchange. The sample consisted of 41 firms which were listed between the

years 2007-2011, secondary data for the period was collected from NSE data bank.

Purposive sampling of companies quoted on the NSE during the period 2007-2011 was

carried out with exclusion in the sample of firms that were listed in the course of the

study period and those which were suspended. Turnover rate was used as a proxy for

liquidity. The study found that there was a very weak correlation between Liquidity and

return of listed firms at the Nairobi Securities Exchange. It was concluded that there is a

non-linear relationship between Liquidity and the Return of listed firms at the Nairobi

Securities Exchange.

20
Karanja (2014) also did a study on the effect of financial leverage on corporate

investment of non financial firms listed at the Nairobi Securities Exchange. The objective

of the study was to establish the effect of financial leverage on corporate investment of

non-financial firms listed at the Nairobi Securities Exchange during the period 2009 to

2013. The sample excluded 17 companies listed under banks and insurance because these

companies are regulated and has to meet certain liquidity ratios. Eight companies did not

have complete financials for the period under consideration and therefore were also

excluded. This study made use of secondary data which was obtained from the NSE

library, CMA and in some instances from firm’s annual reports, most of which are

publicly available. The study found out that financial leverage has a significant negative

effect on corporate performance, and has a significant positive effect on firm value. The

study further concluded that net sales, return on investment, liquidity of firm affect the

firm’s investment decision.

2.5 Summary of Literature Review

The study reviewed the liquidity preference theory, signaling theory and trade off theory

of liquidity. Liquidity index is one of the determinants of corporate liquidity was also

reviewed. It was also reviewed that from the diversification of unrelated businesses data,

the total assets (interest held) or investment held in other companies or businesses shall

be divided by the total assets held by the main company business. From the forging

discussions, research in the area of corporate liquidity and investment of companies in

securities exchange has been done mainly in developed countries but little has been done

in developing economies and specifically in Kenyan market. For example, Kioech (2012)

and Karanja (2014) investigated the relationship between liquidity and return of stock at

21
the Nairobi Securities Exchange and the effect of financial leverage on corporate

investment of non financial firms listed at the Nairobi Securities Exchange respectively.

Although literature has been reviewed on the relationship between corporate liquidity

and investments of companies listed Securities Exchange, most of these studies have

been done in other countries whose strategic approach and financial footing is different

from that of Kenya. None of them therefore focused on how these apply in the Kenyan

case. It is evident therefore that a literature gap exists on the relationship between

corporate liquidity and investments of companies listed in Nairobi Securities Exchange.

This study therefore seeks to fill this gap by focusing on the relationship between

corporate liquidity and investments of companies listed in Nairobi Securities Exchange

22
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction

This chapter includes the various stages that will be followed to complete the study. The

chapter therefore comprised of the following subsections: research design, target

population, data collection and data analysis and presentation.

3.2 Research Design

This study adopted a descriptive research design. According to Cooper and Schindler

(2003), descriptive research design is a research design concerned with finding out who,

what, where, or how of the research. It describes a population with respect to important

variables. The design is used for various purposes one of which is to determine

relationships between variables. The design fits the proposed study which aims to

determine relationships between variables, that is liquidity and investment.

3.3 Target Population

Target population is the specific population about which information is desired (Ngechu,

2004). The target population of this study consisted of all the firms listed in the Nairobi

Securities Exchange. According to the Nairobi Securities Exchange, as at 2014, there are

62 listed firms at the NSE under different categories. The target population excluded

eight firms whose performance data for the period under study was incomplete. Therefore

a total of fifty four (54) companies will form sample of the study.

23
3.4 Data Collection

This study made use of secondary data that was obtained from the NSE library, CMA and

from firm’s annual reports to collect data on listed companies investments, current assets,

current liability, companies’ debts/equity and the total assets of which are publicly

available. This was for a five year period, from the year 2010 to 2014. Main data was

extracted from the financial statements and annual reports. In the study, book values will

be used for the computation of various variables.

3.5 Data Analysis and Presentation

The data was then analyzed using descriptive statistics. The descriptive statistical tools

(SPSS Version 20 and Excel) helped the researcher to describe the data. The findings

were presented using tables and graphs for further analysis and to facilitate comparison,

while explanation to the table and graphs were given in prose.

3.5.1 Analytical Model

The study further used regression inferential analysis. Multiple regressions were used to

determine the predictive power of liquidity on investment. Regression method was useful

for its ability to test the nature of influence of independent variables on a dependent

variable. Regression is able to estimate the coefficients of the linear equation, involving

one or more independent variables, which best predicted the value of the dependent

variable (Cooper and Schindler (2003).

The regression model was as follows:

24
Y = β0 + β1X1 + β2X2 + β3X3 + ε

Where: Y = Investment (logarithm of [investment in securities + government bonds])

β0 = Constant Term;

β1, β2, β3, = Beta coefficients;

X1= liquidity (Current ratio)

Current assets
Current ratio =
Current liability

X2= Leverage; this will be (Debt/Equity)

X3= Firm Size; this will be Natural logarithm of Total Assets

ε = Error term.

3.5.2 Test of Significance

R2 is a statistical measure of how close the data are to the fitted regression line. It is also

known as the coefficient of determination, or the coefficient of multiple determinations

for multiple regressions. R2 is defined in terms of the variation about the mean of y

(investment) so that the model is arranged and the dependent variable changes R2 also

change. It is thus goodness of fit static given by ration of the explained sum of squares.

Analysis Of Variance, popularly known as the ANOVA, can be used in cases where there

are more than two groups the technique is used to compare the means of more than two

25
samples. F test was used to measure multiple variables which in our case are liquidity,

Leverage and Firm Size. Under the F test framework, two regressions are required known

as the Restricted and unrestricted Regressions. F calculated will be tested against F

critical to assess significance.

26
 CHAPTER FOUR

DATA ANALYSIS, RESULTS AND DISCUSSION

4.1 Introduction

This chapter presents the information processed from the data collected during the study

on the relationship between corporate liquidity and investments of companies listed in the

NSE.

4.2 Descriptive Statistics

Table 4. 1: Descriptive Statistics of the Study Variables

Min Max Mea Std. Skewness Kurtosis

n Dev

Std. Error

Std. Error
Statistic

Statistic

Statistic

Statistic

Statistic

Statistic
2.776 1.569 0.4958 -
Liquidity 54 1.5987 0.369 -0.374
0.61
9 0.726

3.9579 10.19
Firm size 54 0.259 1.08 21.62 4.0400 2.949 .369
4 0

21.61
4.087 0.3070
Leverage 54 1.079 9 0.9295 .243 .369 0.397
6

Investment 4.81 8.27 6.664 .9170 - .211 -.898

54 0.018
s 0 6 .156

27
Source: Author (2015)

The results in Table 4.1 showed that liquidity had a minimum, maximum and mean score

of 0.61, 2.776 and 1.569 respectively and a standard deviation of 1.5987, firm size had a

minimum, maximum and mean score of 0.259, 1.08 and 21.62 respectively and a

standard deviation of 4.040, and leverage had had a minimum, maximum and mean score

of 1.079, 21.61965 and 4.087 respectively while investments had a mean score of 0.02.

Analysis of skewness shows that liquidity, leverage, firm size and investments are

asymmetrical to the right around their mean as shown by 0.49589, 3.95794, 0.30706 and

0.91706 respectively. Liquidity, leverage, firm size and investments are nearly normally

distributions since their kurtosis values close are 0.369, .369, .369 and .211 which are

closer to zero.

4.3 Correlation Analysis

Table 4. 2: Correlation matrix

Investments Liquidity Size Leverage

Investments Pearson Correlation 1
Sig. (2-tailed)
Liquidity Pearson Correlation .072 1
Sig. (2-tailed) .356
Size Pearson Correlation .318 .059 1
Sig. (2-tailed) .000 .452
Leverage Pearson Correlation .085 .030 .055 1
Sig. (2-tailed) .279 .706 .485
Source: Author (2015)

Investments, liquidity, firm size and leverage were computed into single variables per

factor by obtaining the averages of each factor. Pearson’s correlations analysis was then

28
conducted at 95% confidence interval and 5% confidence level 2-tailed. The table above

indicates the correlation matrix between the factors (liquidity, firm size and leverage) and

investments. According to the table, there is a positive relationship between investments

and liquidity, firm size and leverage of magnitude .072,.318 and .085 respectively. The

positive relationship indicates that there is a correlation between the factors and

investments. This infers that size has the highest effect on investments, followed by

leverage, then liquidity having the lowest effect on the investments of firms listed in

Nairobi securities exchange (NSE).

4.4 Multicollinearity Test

The study conducted a multicollinearity tests to determine if two or more predictor

independent variables in the multiple regression model are highly correlated.

Table 4. 3: Multicollinearity Statistics

Tolerance VIF

Investments 0.886 1.938

Liquidity 0.732 2.071

Size 0.671 2.558

Leverage 0.343 4.999

Source: Research Data

The study used tolerance and variance inflation factor (VIF) values for the predictors as a

check for multicollinearity. Tolerance indicates the percent of variance in the independent

variable that cannot be accounted for by the other independent variable while VIF is the

29
inverse of tolerance. Table 4.5 shows that tolerance values ranged between 0.343 and

0.886 while variance inflation factor ranged between 1.938 and 4.999. Since tolerance

values were above 0.1 and VIF below 10, and there were was no multicollinearity in the

model.

4.5 Regression Analysis

The study conducted a multiple regression to establish the relationship between the study

variables. Coefficient of determination explains the extent to which changes in the

dependent variable can be explained by the change in the independent variables or the

percentage of variation in the dependent variable (investments) that is explained by all

the four independent variables (liquidity, leverage and firm size).

Table 4. 4: Results of multiple regressions between investments and the combined

effect of the selected predictors

Std. Error of the

Model R R Square Adjusted R Square Estimate

1 0.826 0.682 0.665 0.203

Source: Author (2015)

The three independent variables that were studied explain 66.5% of the variables in

investments as represented by the adjusted R2. This therefore means the three variables

contribute to 66.5% of the variables in investments, while other factors not studied in this

research contributes to 33.5% of investments.

30
Table 4. 5: Summary of One-Way ANOVA results of the regression analysis

between investments and predictor variables

Sum of

Model Squares df Mean Square F Sig.

1 Regression 5.700 3 1.900 38.857 0.0028

Residual 2.445 50 0.049

Total 8.145 53

Source: Author (2015)

From the ANOVA statistics in table 4.3, the processed data, which are the population

parameters, had a significance level of 0.0028 which shows that the data is ideal for

making a conclusion on the population’s parameter. The F calculated at 5% Level of

significance was 38.857. Since F calculated is greater than the F critical (value = 3.72),

this shows that the overall model was significant that is there is a significant relationship

between corporate liquidity and investments.

31
Table 4. 6: Regression coefficients of the relationship between investments and the
three predictive variables

Unstandardized Standardized

Coefficients Coefficients

Model B Std. Error Beta t Sig.

1 (Constant) 8.074 3.839 2.10 0.018

Liquidity 0.098 0.128 0.008 0.76 0.022

Leverage 0.084 0.034 0.273 2.49 0.013

Firm size 0.290 0.268 0.130 1.08 0.017

Source: Author (2015)

The coefficient of regression in table 4.4 above was used in coming up with the model

below:

Y = 8.074 + 0.098 X1 + 0.084 X2 + 0.290 X3

From the model, taking all factors (liquidity, leverage and firm size) constant at zero,

investments was 8.074. The data findings analyzed also shows that taking all other

independent variables at zero, a unit increase in liquidity lead to a 0.098 increase in

investments; unit increase in firm size will lead to a 0.290 increase in investments; a unit

increase in leverage will lead to a 0.084 increase in investments. According to the model,

all the variables were significant as their P- value was less than 0.05. All the variables

were positively correlated with investments.

32
4.6 Summary and Interpretation of Findings

From the above regression model, the study found out that liquidity, firm size and

leverage had a positive effect on investments. The study found out that the intercept was

8.074 for all years.

The three independent variables that were studied (liquidity, firm size and leverage)

explain a substantial 66.5% of investments of companies listed in the NSE as represented

by adjusted R2 (0.665). This therefore means the three variables contribute to 66.5% of

investments, while other factors not studied in this research contributes 33.5% of

investments. The findings of this study agree with Nasr and Raheman (2007) who posited

that liquidity plays a significant role in the successful functioning of companies hence, a

company should ensure that it does not suffer from lack-of or excess liquidity to meet its

short-term compulsions. Fang et al. (2009) also found that firms with greater liquidity are

better placed to invest more compared to companies with low liquidity and greater

variance in the predictions of stock market analysts predicts greater actual investment and

equity issuance.

The study established that the coefficient for liquidity was 0.098, meaning that liquidity

positively and significantly influenced the investments of companies listed in the NSE.

This correlates to Azimi, Arbabian and Khanmohammad (2015) who show that the

liquidity has a positive effect on sensitivity of investment in the automotive and parts

manufacturing. However, Koech (2012) found that there was a very weak correlation

between Liquidity and return of listed firms at the Nairobi Securities Exchange. Nasr and

Raheman (2007) posited that liquidity plays a significant role in the successful

33
functioning of nonfinancial companies hence, a company should ensure that it does not

suffer from lack-of or excess liquidity to meet its short-term compulsions. In addition,

Ngugi and Njiru (2005) also expressed that corporate liquidity plays a fundamental role

in assisting the firm to meet its shorter and medium term obligations when they arise.

This enables listed firms to manage working capital and optimize the surplus funds all in

a rapidly changing regulatory environment.

The study also established that the coefficient for firm size was 0.290, meaning that firm

size positively and significantly influenced the investments of companies listed in the

NSE. This is in line with Azhagaiah and Ramachandran (2007) who indicated that the

size of a firm is a primary factor in determining the profitability of a firm due to the

concept known as economies of scale which can be found in the traditional neo classical

view of the firm. It reveals that contradictory to smaller firms, items can be produced on

much lower costs by bigger firms. In accordance with this concept, a positive relationship

between firm size and profitability is expected.

The study also established that the coefficient for leverage was 0.084, meaning that

leverage positively and significantly influenced the investments of companies listed in

the NSE. This agrees with Karanja (2014) who did a study on the effect of financial

leverage on corporate investment of non-financial firms listed at the Nairobi Securities

Exchange and found that financial leverage has a significant negative effect on corporate

performance, and has a significant positive effect on firm value. The study further

concluded that net sales, return on investment, liquidity of firm affect the firm’s

investment decision. In addition, the results of the study by Bothwell, Cooley and Hall

(1984) indicate that higher leveraged firms (with relatively high liabilities) are more

34
profitable. However, Aivazian et al (2005) also investigated the impact of leverage on the

firm’s investment decisions using information on Canadian publicly traded companies

and revealed a negative relationship between leverage and investment. In addition,

Aivazian et al. (2005) for Canada and Odit & Chittoo (2008) for Mauritius found that

leverage is negatively related to investment

35
 CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary

Liquidity management and investments are very important issues in the growth and

survival of business and the ability to handle the trade-off between the two is of great

concern for financial managers. The study sought to establish the relationship between

corporate liquidity and investments of companies listed in Nairobi Securities Exchange.

A descriptive research design was applied in this study. The population of interest in this

study consisted of all the 54 firms quoted in the Nairobi Securities Exchange. In this

study emphasis was given to secondary data which was obtained from the financial

statements covering the years 2010-2014 for companies investments, current assets,

current liability, companies’ debts/equity and the total assets of which are publicly

available. In order to test the relationship between the variables the inferential tests

including the regression analysis was used to determine the effect of corporate liquidity

on investments.

The study found that the liquidity, leverage and firm size contribute to 66.5% of

investments and that a unit increase in liquidity leads to a 0.098 increase in investments.

From the study findings and discussion, the study concludes that corporate liquidity

affects the level of investments of companies listed in the NSE. The conclusion is that

corporate liquidity had a positive and significant affect investments of companies listed in

the NSE for the period of this study. The study recommends that adequate funding

should be directed towards investments for optimum structure of the liquidity, and to

make a proper balance between liquidity and investments. The study also recommends

36
that the management should expand and diversify on unrelated businesses of firms to

reduce the amount of corporate liquidity that most of these firms hold since more money

is invested in different investments. Finally the study recommends that diversification of

proper management of working capital is required in maintaining liquidity in day-to-day

operation to ensure the smooth running and meeting obligation as they fall due.

5.2 Conclusions

Corporate liquidity plays a fundamental role in assisting the firm to meet its shorter and

medium term obligations as and when they arise. This enables listed firms to manage

working capital and optimize the surplus funds all in a rapidly changing regulatory

environment. From the study findings and discussion, the study concludes that corporate

liquidity affect the level of investments of companies listed in the NSE. The conclusion is

that liquidity has a positive and significant effect on investments of companies listed in

the NSE for the period of this study. Firms with greater liquidity are better placed to

invest more compared to companies with low liquidity and greater variance in the

predictions of stock market analysts predicts greater actual investment and equity

issuance. The study findings are similar to those of Azimi, Arbabian and

Khanmohammad (2015) who found that the liquidity has a positive effect on sensitivity

of investment in the automotive and parts manufacturing. Ngugi and Njiru (2005) also

posited that corporate liquidity plays a fundamental role in assisting the firm to meet its

shorter and medium term obligations when they arise. This enables listed firms to manage

working capital and optimize the surplus funds all in a rapidly changing regulatory

environment

37
The study further concludes that firm size positively and significantly influenced the

investments of companies listed in the NSE. This is correlates with Azhagaiah

Ramachandran (2007) who indicated that the size of a firm is a primary factor in

determining the profitability of a firm due to the concept known as economies of scale

which can be found in the traditional neo classical view of the firm. It reveals that

contradictory to smaller firms, items can be produced on much lower costs by bigger

firms. In accordance with this concept, a positive relationship between firm size and

profitability is expected.

The study finally concludes that leverage positively and significantly influenced the

investments of companies listed in the NSE. This agrees with Karanja (2014) who found

that financial leverage has a significant negative effect on corporate performance, and has

a significant positive effect on firm value.

5.3 Limitations of the Study

The main limitations of this study was with regard to data availability, the data for most

companies can only be traced back only for the past three years, possibly not long enough

to capture the market cycle. Further, the data was tedious to collect and compute as it was

in its very raw form. The short time span of the data used in this research posed serious

drawbacks in drawing clear cut conclusion from the results since it limits the number of

lags that can be used.

The research focused on companies which were continuously listed at the Nairobi

Securities Exchange for the year 2010 to 2014 a period of five year. However the target

population size of the study was small considering the total number of registered limited

38
liability companies in Kenya and hence the finding can’t be generalized as true of all

companies in Kenya. The period covered was also shorter and a longer period of more

than five years is necessary.

The study relied on secondary data which were collected from audited financial

statements of the sampled companies which are prepared in accordance with the

Generally Accepted Accounting Principles and International Financial Reporting

Standard however there is a possibility of use of different accounting policies such as

depreciation rate resulting into different outcome.

The research population included companies from all sectors of the economies and hence

different operating environment. The study could be undertaken among companies

operating in the same sector of the economy. Second, time and resources allocated to this

study could not allow the study to be conducted as deeply as possible in terms of other

predictor variables for investments of companies listed in the NSE. Another challenge is

limited data availability and the uncertain quality of the data used. The quality of the data

may be a weakness of this study. It is not possible to tell from this research whether the

results are simply due to the nature and quality of data used or whether it is the true

picture of the situation. Actually, the use of the data from the various sources like the

KNBS is based on the assumption that the data are accurately captured.

5.4 Recommendations for Policy and Practice

From the study findings, the study recommends that adequate funding should be directed

towards investments for optimum structure of the liquidity, and to make a proper balance

between liquidity and investments. The study also recommends that diversification of

39
proper management of working capital is required in maintaining liquidity in day-to-day

operations to ensure the smooth running and meeting obligations as they fall due.

The study recommends that efforts should be made by management to improve the

investments of the company such as to carry out a policy to maximize the use of debt in

capital spending activity, and the efforts to be made by management to increase the value

of the company through the funding policy.

The study also recommends that the management of various companies listed on the NSE

take cognizance of the findings in this study as a starting point to understanding how

industry factors influence the investments of their firms. The study also recommends that

investors use this information to make better decisions in where to invest their funds after

evaluating what their interests are. These results should aid them in making decisions on

which industries to invest in so as to reap better benefits in terms of dividends.

The study finally recommends that firm’s capital structure should be streamlined since it

is an important determinant of firm’s investment and the direction of the relationship is

reverse. The capital structure is the one that determine the proportion of finance that leads

to corporate investment. The study finally recommends that the companies listed in the

NSE should pay more attention to leverage and firm size which influence investments

positively.

5.5 Suggestions for Further Studies

There is need for further studies to carry out similar study to investigate the other (33.5%)

factors influencing investments of companies. There is also a need for further studies to

carry out similar study on companies listed in the NSE for a longer time period. This
40
study only took into consideration of three years from 2011 – 2014. A study of 10 – 15

years would be recommended.

The study was carried out to determine the effect of corporate liquidity on investment of

firms listed at the NSE. Future research should strive to improve the identification of the

linkages between liquidity management and real variables such as employment,

innovation, corporate governance, legal, contractual framework and macroeconomic

conditions. Empirical work on liquidity should exploit naturally occurring heterogeneity

across these dimensions as a way to identify causes and consequences of firms’ liquidity

policies. Addition variables may be incorporated in the study in order to have wider

outcome.

The research should be extended to none listed companies and also for longer period of

time. Inclusion of none listed companies may help in elimination of any biasness that

may be associated with listed companies as none listed companies are also regulated by

Capital Market Authority. This will enable none listed companies and listed companies to

meet their investment obligations and when they all due.

41
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46
 APPENDICES

Appendix I: Data Collection Sheet

2010 2011 2012 2013 2014

Investment in securities

Government bonds

Current assets

Current liability

Debt

Equity

47
Appendix II: List of firms listed in the NSE

AGRICULTURAL

1 Eaagads Ltd

2 Kapchorua Tea Co. Ltd

3 Kakuzi

4 Limuru Tea Co. Ltd

5 Rea Vipingo Plantations Ltd

6 Sasini Ltd

7 Williamson Tea Kenya Ltd

AUTOMOBILES AND ACCESSORIES

8 Car and General (K) Ltd

9 Sameer Africa Ltd

10 Marshalls (E.A.) Ltd

BANKING

11 Barclays Bank Ltd

12 CFC Stanbic Holdings Ltd

13 I&M Holdings Ltd

14 Diamond Trust Bank Kenya Ltd

15 Housing Finance Co Ltd

16 Kenya Commercial Bank Ltd

48
17 National Bank of Kenya Ltd

18 NIC Bank Ltd 0rd

19 Standard Chartered Bank Ltd

20 Equity Bank Ltd

21 The Co-operative Bank of Kenya Ltd

COMMERCIAL AND SERVICES

22 Express Ltd

23 Kenya Airways Ltd

24 Nation Media Group

25 Standard Group Ltd

26 TPS Eastern Africa (Serena) Ltd

27 Scangroup Ltd

28 Uchumi Supermarket Ltd

29 Hutchings Biemer Ltd

30 Longhorn Kenya Ltd

31 Atlas Development and Support Services

CONSTRUCTION AND ALLIED

32 Athi River Mining

33 Bamburi Cement Ltd

34 Crown Berger Ltd

49
35 E.A.Cables Ltd

36 E.A.Portland Cement Ltd

ENERGY AND PETROLEUM

37 KenolKobil Ltd

38 Total Kenya Ltd

39 KenGen Ltd

40 Kenya Power & Lighting Co Ltd

41 Umeme Ltd

INSURANCE

42 Jubilee Holdings Ltd

43 Pan Africa Insurance Holdings Ltd

44 Kenya Re-Insurance Corporation Ltd

45 Liberty Kenya Holdings Ltd

46 British-American Investments Company ( Kenya) Ltd

47 CIC Insurance Group Ltd

INVESTMENT

48 Olympia Capital Holdings ltd

49 Centum Investment Co Ltd

50 Home Afrika Ltd

51 Kurwitu Ventures

50
 INVESTMENT SERVICES

52 Nairobi Securities Exchange Ltd

MANUFACTURING AND ALLIED

53 B.O.C Kenya Ltd

54 British American Tobacco Kenya Ltd

55 Carbacid Investments Ltd

56 East African Breweries Ltd

57 Mumias Sugar Co. Ltd

58 Unga Group Ltd

59 Eveready East Africa Ltd

60 Kenya Orchards Ltd

61 A.Baumann CO Ltd

62 Flame Tree Group Holdings Ltd

51
Appendix III: research data
LIQUIDITY

Company 2014 2013 2012 2011 2010

Current

Current

Current

Current

Current

Current

Current

Current

Current

Current
Liabiliti

Liabiliti

Liabiliti

Liabiliti

Liabiliti
Assets

Assets

Assets

Assets

Assets
Eaagads 33,0 37,9 47,2 35,4 84,9 4,53 86,8 14,6
Limited 01.0 38.0 42.0 75.0 87.0 0.00 03.0 04.0
0 0 0 0 0 0 0
Kakuzi Limited 1,18 177, 1,17 147, 1,23 146, 1,17 351, 795, 383,
1,08 421. 0,65 181. 7,47 023. 4,64 157. 569. 678.
5.00 00 5.00 00 3.00 00 5.00 00 00 00
Kapchorua Tea 621, 121, 823, 388, 752, 456, 575, 274, 678, 413,
Company 620. 855. 337. 985. 190. 895. 942. 093. 761. 617.
Limited 00 00 00 00 00 00 00 00 00 00
Limuru Tea 132, 16,3 138, 8,22 130, 10,5 100, 5,48 89,2 11,1
Company 007. 31.0 682. 1.00 762. 37.0 340. 7.00 27.0 96.0
Limited 00 0 00 00 0 00 0 0
Rea Vipingo 1,28 198, 1,04 220, 879, 257, 894, 425, 586, 436,
Plantations 8,31 051. 0,88 663. 556. 984. 146. 236. 491. 849.
Limited 8.00 00 7.00 00 00 00 00 00 00 00
Sasini Tea And 1,24 534, 1,29 731, 1,10 585, 1,24 583, 1,22 519,
Coffee Limited 5,08 840. 5,04 249. 9,87 628. 3,23 435. 7,65 045.
3.00 00 5.00 00 1.00 00 3.00 00 6.00 00
Car And 2,87 1,13 2,82 836, 2,66 940, 2,27 754, 2,16 796,
General 2,11 7,99 2,53 561. 5,33 764. 7,37 107. 0,00 233.
(Kenya) 1.00 5.00 1.00 00 0.00 00 3.00 00 5.00 00
Limited
Marshalls (EA) 181, 305, 147, 220, 197, 174, 182, 673, 284, 570,
Limited 340. 644. 219. 552. 102. 466. 914. 297. 076. 532.

52
 00 00 00 00 00 00 00 00 00 00
Sameer Africa 2,87 1,13 2,82 836, 2,66 940, 2,27 754, 2,16 796,
Limited 2,11 7,99 2,53 561. 5,33 764. 7,37 107. 0,00 233.
1.00 5.00 1.00 00 0.00 00 3.00 00 5.00 00
Barclays Bank 225, 187, 206, 174, 184, 155, 167, 137, 172, 140,
Of Kenya 844. 659. 739. 367. 826. 239. 029. 806. 415. 950.
Limited 00 00 00 00 00 00 00 00 00 00
CFC Stanbic 180, 144, 180, 148, 143, 115, 150, 130, 140, 115,
Bank 998, 103, 511, 086, 212, 972, 171, 841, 080, 311,
985. 792. 797. 006. 155. 067. 015. 888. 202. 587.
00 00 00 00 00 00 00 00 00 00
Co-operative 285, 242, 231, 194, 200, 171, 168, 147, 154, 134,
Bank Of Kenya 396, 518, 215, 077, 588, 221, 312, 360, 339, 359,
627. 948. 359. 102. 000. 000. 000. 000. 000. 000.
00 00 00 00 00 00 00 00 00 00
Diamond Trust 211, 179, 166, 142, 135, 116, 107, 94,5 83,6 73,3
Bank (Kenya) 539, 275, 520, 776, 461, 834, 765, 16,2 00,1 40,4
Limited 412. 854. 351. 047. 412. 491. 064. 45.0 77.0 98.0
00 00 00 00 00 00 00 0 0 0
Equity Bank 344, 280, 277, 226, 243, 200, 196, 162, 143, 115,
Limited 572, 796, 728, 173, 170, 254, 293, 008, 018, 814,
000. 000. 818. 047. 458. 070. 896. 349. 000. 000.
00 00 00 00 00 00 00 00 00 00
Housing 56,8 50,7 47,3 41,5 40,9 35,8 31,8 27,1 29,2 25,0
Finance 90,8 86,6 89,3 29,8 56,5 19,3 70,9 53,5 78,3 20,9
Company 74.0 38.0 77.0 70.0 77.0 33.0 16.0 52.0 96.0 89.0
Limited 0 0 0 0 0 0 0 0 0 0
I &M Holdings 114, 95,4 141, 117, 144, 125, 108, 92,8 86,8 73,0
Limited 972, 71,9 364, 508, 725, 308, 063, 97,0 82,1 31,7
436. 91.0 216. 027. 072. 983. 713. 41.0 53.0 16.0
00 0 00 00 00 00 00 0 0 0

53
Kenya 490, 414, 390, 327, 367, 314, 330, 286, 251, 212,
Commercial 338, 704, 851, 496, 379, 039, 716, 351, 356, 226,
Bank Limited 324. 767. 579. 612. 285. 726. 159. 132. 200. 429.
00 00 00 00 00 00 00 00 00 00
National Bank 123, 110, 92,5 80,6 67,1 56,7 68,6 58,2 60,0 50,0
Of Kenya 091, 867, 55,7 67,3 78,6 11,4 64,5 08,0 26,6 97,0
Limited 996. 973. 17.0 18.0 07.0 31.0 16.0 42.0 94.0 83.0
00 00 0 0 0 0 0 0 0 0
NIC Bank 145, 122, 121, 103, 108, 92,8 78,9 68,4 59,0 50,6
Limited 780, 429, 062, 493, 348, 66,9 84,0 61,0 13,9 60,6
505. 792. 739. 833. 593. 71.0 05.0 52.0 22.0 93.0
00 00 00 00 00 0 0 0 0 0
Standard 222, 181, 220, 184, 195, 164, 164, 143, 142, 122,
Chartered Bank 495, 837, 391, 184, 352, 599, 046, 352, 746, 415,
Kenya Limited 824. 650. 180. 779. 756. 942. 624. 168. 249. 127.
00 00 00 00 00 00 00 00 00 00
Express Kenya 75,0 126, 103, 161, 63,9 161, 132, 410, 179, 559,
Limited 23.0 591. 198. 186. 86.0 491. 695. 257. 082. 941.
0 00 00 00 0 00 00 00 00 00
Kenya Airways 29,6 63,7 28,6 50,8 21,8 23,7 23,6 22,2 17,8 20,5
Limited 36,0 56,0 08,0 41,0 33,0 56,0 22,0 14,0 60,0 80,0
00.0 00.0 00.0 00.0 00.0 00.0 00.0 00.0 00.0 00.0
0 0 0 0 0 0 0 0 0 0
Longhorn 548, 313, 484, 299, 444, 397, 526, 298, 379, 200,
Kenya Limited 820. 211. 324. 153. 044. 090. 934. 248. 942. 363.
00 00 00 00 00 00 00 00 00 00
Nation Media 7,37 3,11 7,56 3,11 7,24 3,21 5,85 2,53 5,07 2,55
Group Limited 5,00 8,30 6,30 6,40 8,20 6,70 5,10 0,90 6,80 3,10
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Scangroup 10,9 4,44 10,4 4,25 7,34 3,26 7,77 3,79 7,11 4,24
Limited 23,1 0,00 59,9 9,75 9,62 1,17 8,58 7,59 7,89 0,48

54
 59.0 9.00 53.0 0.00 2.00 4.00 7.00 9.00 2.00 3.00
0 0
Standard Group 1,49 1,22 1,64 1,42 1,24 1,11 1,28 1,19 1,36 1,03
Limited 1,01 2,94 3,57 1,65 8,27 8,70 7,68 4,51 9,28 5,67
9.00 1.00 7.00 1.00 2.00 3.00 3.00 9.00 7.00 2.00
TPS Eastern 2,22 2,77 2,27 2,61 1,94 2,17 2,41 1,61 2,33 1,65
Africa Limited 7,17 0,75 1,03 8,11 3,89 3,75 4,92 5,29 5,98 7,96
(Serena Hotels) 9.00 8.00 9.00 2.00 5.00 4.00 9.00 6.00 2.00 5.00
Uchumi 2,25 3,35 1,72 2,44 1,59 2,20 1,39 1,54 1,19 1,29
Supermarket 0,43 0,16 5,31 8,12 4,14 3,76 7,65 2,18 3,56 4,43
Limited 6.00 9.00 5.00 1.00 6.00 9.00 0.00 7.00 7.00 8.00
ARM Cement 8,20 17,4 6,84 7,24 7,93 6,50 3,72 4,42 4,24 3,20
Limited 5,77 90,5 8,56 6,58 6,41 2,84 3,22 0,05 0,06 6,46
7.00 96.0 2.00 4.00 0.00 0.00 1.00 3.00 2.00 0.00
0
Bamburi 15,5 6,76 16,0 5,99 16,4 7,01 13,3 5,09 12,8 7,46
Cement 45,0 8,00 37,0 1,00 62,0 1,00 56,0 7,00 63,0 4,00
Company 00.0 0.00 00.0 0.00 00.0 0.00 00.0 0.00 00.0 0.00
Limited 0 0 0 0 0
Crown Paints 2,86 2,50 2,16 1,56 1,58 1,03 1,56 1,07 1,48 991,
Kenya Limited 6,64 0,55 7,35 8,79 9,24 4,70 9,31 1,99 0,06 781.
3.00 8.00 3.00 8.00 4.00 9.00 5.00 8.00 9.00 00
East African 3,84 3,29 3,61 2,77 3,03 2,53 2,40 2,07 1,79 1,39
Cables Limited 6,79 3,68 3,97 6,89 1,43 2,22 7,50 4,31 5,68 9,36
5.00 9.00 4.00 8.00 9.00 6.00 4.00 2.00 6.00 2.00
East African 3,32 3,51 3,60 3,31 2,45 2,39 3,17 2,10 2,91 1,83
Portland 4,06 2,28 2,06 9,47 6,03 9,17 2,07 0,17 1,68 6,65
Cement 1.00 9.00 3.00 8.00 1.00 8.00 0.00 9.00 0.00 0.00
Company
Kenol Kobil 15,4 16,2 19,3 20,7 24,5 25,3 40,1 32,7 26,0 18,8
Limited 88,0 98,9 81,6 38,7 40,3 40,8 45,8 94,1 13,4 79,4

55
 19.0 22.0 69.0 54.0 81.0 16.0 62.0 77.0 80.0 07.0
0 0 0 0 0 0 0 0 0 0
Kenya 27,6 25,1 25,1 17,6 22,2 15,0 19,5 11,2 32,8 6,96
Electricity 30,6 96,2 27,8 72,6 88,0 00,9 39,0 56,5 49,4 9,81
Generating 43.0 29.0 10.0 29.0 66.0 57.0 34.0 93.0 14.0 5.00
Company 0 0 0 0 0 0 0 0 0
(KENGEN)
The Kenya 50,4 48,8 37,7 38,8 28,1 31,3 35,1 30,3 20,5 18,8
Power & 11,8 47,7 27,9 75,1 59,3 83,1 50,6 70,6 83,5 47,2
Lighting Co. 59.0 28.0 82.0 40.0 84.0 38.0 76.0 07.0 85.0 30.0
Limited 0 0 0 0 0 0 0 0 0 0
Total Kenya 22,2 14,9 30,0 23,4 23,3 17,9 25,3 22,9 20,1 17,0
Limited 40,1 24,2 37,2 88,0 48,4 33,1 38,9 82,7 14,5 90,8
37.0 10.0 64.0 77.0 59.0 63.0 51.0 64.0 77.0 99.0
0 0 0 0 0 0 0 0 0 0
Umeme 485, 469, 404, 379, 323, 304,
Limited 474. 467. 355. 633. 314. 357.
00 00 00 00 00 00
Britam Limited 46,9 32,1 35,8 23,3 25,6 17,0 25,6 17,0
02,5 50,2 20,1 47,8 39,2 81,7 39,2 81,7
78.0 36.0 65.0 41.0 44.0 96.0 44.0 96.0
0 0 0 0 0 0 0 0
CIC Insurance 23,6 16,4 17,0 10,7 14,0 8,59 11,1 6,82 6,56 3,95
Limited 90,3 82,9 35,8 04,9 69,5 8,59 20,7 6,65 7,54 8,40
87.0 47.0 17.0 95.0 11.0 1.00 96.0 4.00 9.00 2.00
0 0 0 0 0 0
Jubilee 74,5 58,0 61,1 47,8 47,2 38,5 38,0 31,3 30,6 25,1
Holdings 05,3 26,3 59,1 18,4 57,5 57,8 39,8 28,1 91,3 14,0
Limited 74.0 43.0 85.0 30.0 40.0 51.0 32.0 81.0 82.0 19.0
0 0 0 0 0 0 0 0 0 0
Kenya 32,1 12,1 27,6 10,6 23,1 9,20 19,0 7,56 17,2 6,66

56
Reinsurance 74,2 82,8 28,3 34,6 73,2 8,42 96,4 9,95 40,9 7,42
Corporation 51.0 47.0 11.0 83.0 48.0 1.00 41.0 6.00 29.0 7.00
Limited 0 0 0 0 0 0 0
Liberty Kenya 72,4 51,0 31,4 25,9 27,3 22,8 23,8 20,1
Holdings 50,3 10,6 52,1 87,3 72,1 17,8 95,7 10,1
Limited 54.0 82.0 90.0 08.0 00.0 69.0 77.0 39.0
0 0 0 0 0 0 0 0
Pan Africa 24,5 20,8 21,1 17,8 16,4 14,1 11,5 9,54 10,6 8,83
Insurance 99,4 21,7 57,5 19,0 73,5 00,2 13,8 8,83 71,6 9,10
Company 10.0 77.0 07.0 64.0 22.0 58.0 57.0 3.00 21.0 0.00
Limited 0 0 0 0 0 0 0 0
Centum 358, 526, 3,80 2,74 516, 399,
Investment 489. 459. 1,96 2,19 912. 804.
Company 00 00 1.00 9.00 00 00
(ICDCI)
Limited
Home Afrika 2,96 2,50 2,42 2,22
Limited 7,98 5,59 6,64 5,26
8,27 5,47 1,99 3,99
6.00 7.00 8.00 8.00
Olympia 354, 303, 730, 260, 747, 305, 496, 325, 445, 263,
Capital 807. 527. 355. 928. 389. 346. 344. 788. 888. 767.
Holdings 00 00 00 00 00 00 00 00 00 00
Limited
Transcentury 8,23 5,16 8,78 5,90 7,50 5,84 9,46 7,72 4,09 2,57
Limited 4,66 2,95 4,23 7,12 9,76 6,15 0,38 5,84 4,70 1,50
3.00 3.00 4.00 9.00 7.00 0.00 8.00 6.00 1.00 6.00
Nairobi 788, 128, 284, 282, 143, 104, 131, 45,5 129, 58,9
Securities 067. 506. 944. 034. 341. 190. 113. 82.0 074. 41.0
Exchange 00 00 00 00 00 00 00 0 00 0
Boc Kenya 1,18 553, 1,21 544, 1,08 523, 890, 458, 996, 402,

57
Limited 3,15 132. 1,50 011. 7,97 229. 082. 790. 911. 014.
7.00 00 4.00 00 1.00 00 00 00 00 00
British 8,97 7,18 8,51 6,78 7,12 6,05 6,97 5,34 4,80 4,10
American 2,49 2,90 8,27 1,10 9,82 2,68 9,71 0,62 4,28 6,65
Tobacco Kenya 6.00 5.00 2.00 2.00 8.00 0.00 4.00 9.00 9.00 3.00
Limited
Carbacid 980, 155, 892, 88,4 639, 150, 404, 45,6 385, 66,5
Investments 688. 757. 062. 17.0 388. 166. 113. 98.0 105. 58.0
Limited 00 00 00 0 00 00 00 0 00 0
East African 19,8 27,4 18,5 26,6 18,0 22,4 16,3 15,5 17,3 11,6
Breweries 07,1 60,6 93,1 06,8 57,7 83,7 20,4 09,1 58,8 84,3
Limited 54.0 50.0 02.0 46.0 73.0 82.0 57.0 86.0 73.0 90.0
0 0 0 0 0 0 0 0 0 0
Eveready East 763, 572, 683, 444, 876, 695, 727, 652, 943, 668,
Africa Limited 357. 293. 971. 019. 043. 764. 664. 383. 397. 833.
00 00 00 00 00 00 00 00 00 00
Mumias Sugar 4,35 10,6 7,04 8,40 7,17 5,72 6,51 2,96 6,49 3,25
Company 3,30 35,1 8,36 8,77 1,36 0,65 1,65 1,69 5,83 0,02
Limited 4.00 49.0 4.00 3.00 0.00 5.00 9.00 1.00 4.00 1.00
0
Unga Group 5,48 2,35 5,83 3,81 4,64 2,43 4,08 1,61 3,41 1,34
Limited 5,17 1,95 5,73 7,07 4,89 1,94 6,61 8,79 9,83 4,36
6.00 4.00 2.00 8.00 1.00 1.00 7.00 6.00 7.00 3.00
Safaricom 28,3 38,2 25,3 36,5 21,1 37,6 21,7 34,1 22,5 33,8
21,4 62,5 56,0 91,0 94,1 15,9 01,2 17,7 70,6 19,9
68.0 87.0 24.0 29.0 95.0 00.0 96.0 26.0 45.0 70.0
0 0 0 0 0 0 0 0 0 0

EAAGADS LIMITED total assets Total capital Debts Levera

ge

58
 2011 359922 727875 2432737.3 3.342
07
2012 573356 546669000 294488349 5.387
0
2013 499561 820003500 145424668 1.773
7
2014 445793 932,553,000 199564849 2.14
9
KAKUZI LTD
2014 3857454 2,685,200.00 58053084. 21.62
18
2013 3717543 2,450,000.00 17908990. 7.31
4
2012 3571700 1,862,000.00 17409413. 9.35
25
2011 3817320 1,362,200.00 8604595.1 6.317
18
KAPCHORUA TEA LTD
2014 1,929,161.00 535,944,000.00 813498142 1.518
.8
2013 2,078,475.00 567,240,000.00 132589286 2.337
9
2012 1,962,897.00 473,352,000.00 131391060 2.776
1
2011 1,570,203.00 535,944,000.00 243552462 4.544
0
Limuru Tea Ltd
2014 338,600.00 12,396,523,500. 760706714 6.136
00 25
2013 343,007.00 8,039,250,000.0 1.22E+11 15.177
0
2012 320,023.00 3,456,877,500.0 797554875 2.307
0 2
2011 191,242.00 402,000,000.00 207952228 5.173
2
REA VIPINGO
2014 3,203,131.00 1,650,000,000.0 816818608 4.95
0 7
2013 2,834,011.00 1,650,000,000.0 803084925 4.867
0 0
2012 2376618 1,020,000,000.0 487962585 4.784
0 6
2011 2288740 885,000,000.00 416013053 4.701
7
SASINI TEA LTD

59
 2014 14929577 3,204,179,775.0 145285315 4.534
0 66
2013 9054366 3,033,138,150.0 135005256 4.451
0 01
2012 8922980 2,497,207,725.0 109072406 4.368
0 82
2011 9462027 2,748,068,775.0 117742112 4.285
0 42
CAR AND GENERAL COMPANY LTD
2014 3857392 1,670,054,358.0 687740299 4.118
0 5
2013 3668487 1,433,463,323.9 578379071 4.035
5 1
2012 3399651 1,182,955,200.0 467456866 3.952
0 8
2011 3125040 1,224,706,560.0 473761567 3.868
0 2
Marshalls (E.A)Ltd
2014 603935 143,931,060.00 532818263 3.702
.1
2013 515116 178,474,514.40 645839418 3.619
.8
2012 567095 172,717,272.00 610629862 3.535
.6
2011 1076865 674244078
1
SAMEER AFRICA LTD
2014 3,857,392. 1,670,054,358.0 548734249 3.286
00 0 2
2013 3,668,487. 1,433,463,323.9 459065544 3.202
00 5 6
2012 3,399,651. 1,182,955,200.0 368994245 3.119
00 0 3
2011 3,125,040. 1,224,706,560.0 371823794 3.036
00 0 4
Barclays BANK Kenya Limited
2014
225,844.0 90,180,097,600. 2.59E+11 2.87
0 00
2013 206,739.0 95,612,633,600. 2.66E+11 2.786
0 00
2012 184,826.0 85,290,815,200. 2.31E+11 2.703
0 00
2011 167,029.0 70,881,544,800. 1.86E+11 2.62
0 00
CFC STANBIC HOLDINGS LIMITED

60
 2014 180,998,985. 49,415,204,750. 1.21E+11 2.453
00 00
2013 180,511,797. 35,183,625,782. 833903990 2.37
00 00 63
2012 143,212,155. 16,405,847,977. 375187555 2.287
00 00 26
2011 150,171,015. 10,947,368,440. 241244867 2.204
00 00 27
Diamond Trust Bank
2014 211,539,412. 51,723,500,000. 1.05E+11 2.037
00 00
2013 166,520,351 42,259,218,432. 825734872 1.954
00 83
2012 135,461,412 25,311,511,040. 473512887 1.871
00 06
2011 107,765,064 17,705,829,965. 316492921 1.788
00 54
EQUITY BANK
2014 344,572,000. 185,138,851,00 8.47E+11 4.577
00 0.00
2013 277,728,818. 113,860,393,36 3.17E+11 2.782
00 5.00
2012 243,170,458. 87,940,954,225. 947665793 1.078
00 00 28
2011 196,293,896. 60,725,543,128. 1.34E+11 2.209
00 00
KENYA COMMERCIAL
BANK
490,338,324. 172,437,140,54 2.75E+11 1.594
00 4.00
390,851,579. 141,004,758,44 3.59E+11 2.546
00 7.00
367,379,285. 88,367,625,591. 1.27E+11 1.44
00 00
330,716,159. 50,023,372,728. 1.02E+11 2.036
00 60
STANDARD CHARTERED
BANK
2014 222,495,824. 103,259,277,67 1.11E+11 1.079
00 6.00
2013 220,391,180. 93,984,492,256. 3.83E+11 4.076
00 00
2012 195,352,756. 72,652,485,790. 1.91E+11 2.632
00 00
2011 164,046,624. 45,932,341,280. 1.65E+11 3.581

61
 00 00
Express Kenya Ltd
2014 477,922.00 230,124,635.00 148157323 6.438
7
2013 480,525.00 138,074,781.00 252957141 1.832
2012 495,609.00 123,913,265.00 674331279 5.442
.4
2011 769,296.00 138,074,781.00 261066272 1.891
.9
NATION MEDIA GROUP
LTD
2014 11,944,300.0 49,575,500,000. 1.62E+11 3.273
0 00
2013 11,444,200.0 49,335,231,608. 1.64E+11 3.323
0 00
2012 10,677,400.0 41,322,184,436. 1.39E+11 3.374
0 00
2011 7,975,200.00 21,996,600,080. 753287963 3.425
00 45
SCANGROUP LTD 3.475
2014 13,284,104.0 17,333,078,416. 611119971 3.526
0 50 76
2013 12,744,583.0 18,280,241,171. 653762348 3.576
0 50 21
2012 8,353,595.00 25,951,642,987. 941245993 3.627
00 64
2011 8,489,938.00 11,818,748,812. 434635886 3.678
00 71
TPS EASTERN AFRICA
LIMITED
2014 15,939,177.0 6,558,264,000.0 247816492 3.779
0 0 13
2013 16,136,097.0 8,288,917,000.0 317405814 3.829
0 0 35
2012 13,357,694.0 5,928,425,600.0 230015144 3.88
0 0 68
2011 13,131,840.0 8,151,585,200.0 320394652 3.93
0 0 23
Athi-River Mining Limited
2014 36,912,580.0 40,860,187,500. 1.65E+11 4.032
0 00
2013 29,715,254.0 44,574,750,000. 1.82E+11 4.082
0 00
2012 26,953,100.0 22,039,737,500. 910861657 4.133
0 00 23
62
 2011 20,515,940.0 15,650,690,000. 654731692 4.183
0 00 10
BAMBURI CEMENT
LIMITED
2014 40,991,000.0 50,451,339,225. 2.16E+11 4.285
0 00
2013 43,016,000.0 76,221,447,750. 3.30E+11 4.335
0 00
2012 43038000 67,147,465,875. 2.94E+11 4.386
00
2011 33502000 45,369,909,375. 2.01E+11 4.436
00
Crown Berger Limited
2014 3852814 2,633,697,000.0 119504781 4.538
0 11
2013 2945434 1,779,525,000.0 816467226 4.588
0 1
2012 2258263 1,008,397,500.0 467766171 4.639
0 9
2011 2215352 486,403,500.00 228089069 4.689
1
EAST AFRICAN CABLES
LTD
2014 7889496 4,100,625,000.0 196439456 4.79
0 81
2013 6840055 4,239,843,750.0 205253604 4.841
0 08
2012 5749429 2,961,562,500.0 144869407 4.892
0 35
2011 4993032 2,670,468,750.0 131981077 4.942
0 55
Kenol Kobil Ltd
2014 23915166 12,951,498,560. 653198780 5.043
00 87
2013 28121673 13,908,143,340. 708482447 5.094
00 74
2012 32684166 19,868,776,200. 1.02E+11 5.145
00
2011 38622619 14,644,023,940. 760784904 5.195
00 21
KENGEN
2014 250205524 23,962,139,870. 492139939 2.054
40 95
2013 188673282 33,305,176,058. 588917110 1.768
40 39

63
 2012 163144873 18,905,908,521. 209461018 1.108
60 28
2011 160993290 29,787,797,728. 1.03E+11 3.449
80
Kenya Power &Lighting Company
2014 220109352 26,052,085,050. 4.31E+11 16.539
75
2013 183712535 28,296,272,152. 303804906 1.074
50 70
2012 134131983 29,662,299,084. 513837040 1.732
00 80
2011 119878993 37,294,703,541. 505283188 1.355
00 51
Jubilee Holdings Ltd
2014 74,505,374.0 26,952,750,000. 445533809 1.653
0 00 00
2013 61,159,185.0 19,344,094,750. 555478447 2.872
0 00 85
2012 47,257,540.0 10,352,629,910. 622509848 0.601
0 00 1
2011 38,039,832.0 8,439,750,000.0 198614662 2.353
0 0 29
PAN AFRICA INSURANCE HOLDINGS
LIMITED
2014 32,174,251.0 12,039,122,800. 260040357 2.16
0 00 22
2013 27,628,311.0 9,659,296,200.0 149640078 1.549
0 0 06
2012 23,173,248.0 7,594,446,650.0 377996266 4.977
0 0 67
2011 19,096,441.0 4,380,000,000.0 766279686 1.749
0 0 0
Liberty Kenya Holdings Ltd
2014 72,450,354.0 58,152,480,000. 1.10E+11 1.89
0 00
2013 31,452,190.0 7,754,818,978.2 140943141 1.817
0 0 37
2012 27,372,100.0 3,375,020,884.2 589010059 1.745
0 0 4
2011 23,895,777.0 3,375,020,884.2 564613091 1.673
0 0 6
BOC KENYA LIMITED
2014 2,308,320.00 2,440,680,750.0 373019879 1.528
0 8
2013 2,633,093.00 2,440,625,000.0 355368846 1.456

64
 0 4
2012 1,989,541.00 1,942,737,500.0 268830161 1.384
0 5
2011 1,816,803.00 1,952,500,000.0 256067056 1.311
0 5
Unga Group Ltd
2014 8,026,578.00 3,009,352,693.5 351164156 1.167
0 8
2013 8,108,379.00 2,574,037,524.0 281759915 1.095
0 7
2012 6,399,829.00 5,261,635,527.0 537915702 1.022
0 5
2011 5,708,897.00 681,362,874.00 647327899 0.95
.4
Safaricom Limited
2014
134,600,946. 492,804,764,40 3.97E+11 0.805
00 0.00
2013 128,856,157. 240,000,000,00 1.76E+11 0.733
00 0.00
2012 121,899,677. 128,000,000,00 845953563 0.661
00 0.00 91
2011 113,854,762. 152,000,000,00 894693822 0.589
00 0.00 86
BRITISH AMERICAN TOBACCO LTD
2014 18,253,510.0 90,000,000,000. 399636565 0.444
0 00 04
2013 16,985,923.0 59,500,000,000. 221193489 0.372
0 00 08
2012 15176495 49,300,000,000. 147637180 0.299
00 96
2011 13750545 24,600,000,000. 558862883 0.227
00 2

65