Determinants of the Uptake of Financial Derivatives by Listed Firms in the Nairobi Securities Exchange (NSE). A Survey of Listed Companies in Kenya

Abstract

The purpose of the study was the analyse determinants of the uptake of financial derivatives by listed firms in the Nairobi Securities Exchange in Kenya. The study was guided by the following objective; to evaluate the effect of investment on the uptake of financial derivatives by listed firms on the Nairobi Securities Exchange. The study adopted portfolio theory, financial theory and the efficient market hypothesis theory in the theoretical framework. The study applied a descriptive survey research design.  The target population was 65 listed companies in the NSE and a sample size of 52finance managers drawn from this listed companies.  Questionnaire administration was employed to collect the required primary data. A pilot study done to test the reliability and validity of the data collection instruments. Data collected was analyzed in the light of the objectives of the study with the aid of SPSS for Data analysis. Multiple regression analysis was applied to test the effect of one variable to the other. Based on the findings, it was recommended that there should be a diversified investment in certain industries makes listed companies diversify their risks by dealing in financial derivatives. The global financial markets should invest in ICT to make it easy for companies to cross border trade in the derivatives? the government of Kenya should  invest enough resources to enable the smooth running of the financial derivatives trade.  The capital market should be efficient enough to facilitate the global flow of investment between investors. Trade derivatives should be viewed to be a factor in determining the capital investment of a listed entity in the Nairobi Securities.  The study is significant to the policy makers at the Nairobi Securities Exchange and also to finance scholars who would want to understand the reasons why there is a slow uptake of financial derivatives at the Nairobi Securities Exchange.

Keywords: Financial derivatives, investments