Majakusi_Effect of Liquidity Management on the Financial Performance of Commercial Banks in Kenya.pd

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EFFECT OF LIQUIDITY MANAGEMENT ON THE FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN KENYA BY JOSHUA MAJAKUSI D61/73201/2012 A Research Project Submitted in Partial Fulfillment of Requirements for the Award of a Degree in Master of Business Administration of the University of Nairobi. November, 2016
ii DECLARATION I declare that this project is our original work and has not been presented to any other University or College for the award of a Degree Signed ............................................ Date .................................... Joshua Majakusi D61/73201/2012 This project has been submitted with my approval as the university supervisor. Signed ........................................... Date .................................... Dr. Sifujo Kisaka, Lecturer, Department of Finance and Accounting School of Business, University of Nairobi
iii ACKNOWLEDGEMENT I take this opportunity to thank the Almighty God for his favors and grace upon me. My gratitude also goes to my supervisor Dr. Sifunjo Kisaka his invaluable support, guidance and expertise.
iv TABLE OF CONTENTS DECLARATION ............................................................................................................... ii ACKNOWLEDGEMENT ............................................................................................... iii LIST OF TABLES ........................................................................................................... vi LIST OF FIGURES ........................................................................................................ vii ACRONYMS AND ABBREVIATIONS ...................................................................... viii ABSTRACT ...................................................................................................................... ix CHAPTER ONE: INTRODUCTION .............................................................................. 1 1.1 Background of the Study ........................................................................................................... 1 1.1.1 Liquidity Management ..................................................................................................... 2 1.1.2 Performance of Commercial Banks .................................................................................. 2 1.1.3 Liquidity Management and Performance of Commercial Banks ..................................... 3 1.1.4 Commercial Banking Industry in Kenya .......................................................................... 3 1.3 Problem Statement ..................................................................................................................... 3 1.4 Objective of the Study ............................................................................................................... 5 1.5 Value of the study ...................................................................................................................... 5 CHAPTER TWO: LITERATURE REVIEW ................................................................. 6 2.1 Introduction ................................................................................................................................ 6 2.2 Theoretical Framework .............................................................................................................. 6 2.2.1 Liquidity Management Preference Theory ....................................................................... 6 2.2.2 Shiftability Theory of Liquidity Management .................................................................. 6 2.2.3 Liability Management Theory of Liquidity Management ................................................ 7 2.3 Determinants of Financial Performance of Firms ...................................................................... 7 2.3.1 Capital Adequacy ............................................................................................................. 8 2.3.2 Asset Quality .................................................................................................................... 8 2.3.3 Management Quality ........................................................................................................ 8 2.3.5 Liquidity Management and its Management .................................................................... 9 2.4 Empirical Literature Review ...................................................................................................... 9 2.4.1 International Evidence ............................................................................................................ 9 2.4.2 Local Studies. ........................................................................................................................ 10 2.6 Summary of Literature Review ................................................................................................ 12
v CHAPTER THREE: RESEARCH METHODOLOGY ........................................... 13 3.1 Introduction .............................................................................................................................. 13 3.2 Research Design ....................................................................................................................... 13 3.3 Population of the Study ............................................................................................................ 13 3.4 Data Collection ........................................................................................................................ 13 3.5 Data Analysis ........................................................................................................................... 13 3.5.1 Empirical Model ................................................................................................................... 14 CHAPTER FOUR: DATA ANALYSIS, RESULTS AND DISCUSSION ................. 15 4.1 Introduction .............................................................................................................................. 15 4.2 Summary Statistics ................................................................................................................... 15 4.2.1 Return on Asset .............................................................................................................. 15 4.2.2 Capital Adequacy ........................................................................................................... 16 4.2.3 Liquidity Management ................................................................................................... 17 4.3 Liquidity Management and Financial Performance ................................................................. 18 4.3.1 Results of Model Goodness of Fit Test .......................................................................... 18 4.3.2 Results of ANOVA ........................................................................................................ 19 4.3.3 The Estimated Model ..................................................................................................... 19 4.4 Discussion ................................................................................................................................ 20 4.5 Summary .................................................................................................................................. 20 CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS ...21 5.1 Introduction .............................................................................................................................. 21 5.2 Summary of the Study ............................................................................................................. 21 5.3 Conclusions .............................................................................................................................. 22 5.4 Limitations of the Study ........................................................................................................... 22 5.5 Recommendations for Further Research .................................................................................. 22 REFERENCE ................................................................................................................... 23 Appendix I: List of Commercial Banks in Kenya ............................................................. 25 Appendix II: Panel Data ..................................................................................................... 27
vi LIST OF TABLES Table 4.1: Descriptive Statistics for Return on Asset (ROA) ............................................ 15 Table 4.2: Descriptive Statistics for Capital Adequacy ..................................................... 16 Table 4.3: Descriptive Statistics for Commercial Banks Cash, 2011 - 2014 ..................... 17 Table 4.4: Results of R 2 and Adjusted R 2 .......................................................................... 18 Table 4.5: Results of Regression and Residual Sum of Squares ....................................... 19 Table 4.6: Results of the Estimated Model ........................................................................ 19
vii LIST OF FIGURES Figure 1: Conceptual Framework ...................................................................................... 12 Figure 4.1: The Variability of ROA of Commercial Banks in Kenya, 2011 - 2014

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