Drivers for Issuance of Corporate Bonds by Listed Companies in Kenya

Abstract

Purpose: The study sought to examine the motivations for issuance of corporate bonds among the firms listed on the Nairobi Stock Exchange. The study was guided by the following specific objectives: (To examine how reputation influences issuance of corporate bonds in Kenya: to examine how reputation influences  issuance of corporate bonds in Kenya; to analyze the influence of liquidity incentives on issuance of corporate bonds in Kenya; and to assess the influence of indicators of net worth for the company on the issuance of corporate bonds in Kenya.

Methods: A descriptive survey focusing on all the 56 firms listed on the Nairobi Stock Exchange as at 31^st December 2011 was undertaken. Primary data was collected from the Heads of Finance of the various companies with the aid of a semi-structured undisguised questionnaire with both open ended and closed questions. Data was analyzed by employing descriptive statistics such as percentages, frequencies and tables. Computation of frequencies in tables, charts and bar graphs was used in data presentation. In addition, the researcher used standard deviations and mean scores to present information pertaining to the study objectives. The information was presented and discussed as per the objectives and research questions of the study.

Results: Findings of the study indicate that reputation and liquidity incentives influence issuance of corporate bonds. The findings indicate that companies float bonds to get cash to solve liquidity problems. In addition liquidity depends on long term investments and good liquidity in the market reduces the cost of funding. Net worth indicators have a very low influence on the issuance of a corporate bond; majority of the respondent considers debt and equity as a ratio influence the issuance of bonds.

Keywords: Corporate Bonds, Listed Companies, Corporate Bonds, Stock Market