The Effect of Selected Factors on the Development of Nairobi Securities Exchange

Abstract

This study aimed to find out the effect of selected factors on the development of the Nairobi Securities Exchange. The general objective of this study was to determine the effect of selected factors on the development of the NSE. The specific objectives were to determine the effect of market information; market efficiency; market transparency; market openness; transaction processing system and operating/transaction cost; legal and regulatory framework on the development of the NSE. Both primary and secondary data collection methods were used. A structured data collection questionnaire was used to collect data on market infrastructure factors. The population of study was the Nairobi Securities Exchange. Secondary data was collected on market capitalization from 2006 to 2015 which was used as the indicator of NSE development.  This study used a descriptive research design to describe the empirical data. A regression model was used for data analysis and hypothesis tested with a 0.05 significance level. The regression results of the study indicated that the predictor variables in the regression model explained 80.19% of the variation in development of the NSE; where a unit increase in market information  leads to a 0.382 increase in NSE development,  a unit increase in Market efficiency leads to a 0.097 increase in NSE development, a unit increase in Market transparency leads to a 0.348 increase in NSE development, a unit increase in Market openness leads to a 0.368 increase in NSE development, a unit increase in Transaction processing system and Operating/transaction cost leads to a 0.507 increase in NSE development and a unit increase in Legal and regulatory framework leads to a 0.226 increase in NSE development. Given the effect of the predictor variables on NSE development, the government should improve the market infrastructure which is the center on which financial market revolves. This can be done through initiation of policies that foster growth and development as countries liberalize their financial systems and further enhance domestic resource mobilization, public education awareness programmes, elimination of excessive barriers to the market and putting in place tax regimes and incentives geared towards stimulating companies to be listed in the stock market. Public education awareness programme. This study is of great importance to researchers and academics, government policymakers, regulators and investors and the results should lead to the creation of an enabling environment, development of good regulatory framework and thus faster development of the securities market.

Keywords: Market Information Efficiency, Transparency, Openness, NSE Development,