Factors affecting the development of emerging markets: A case of the Nairobi Stock Exchange.

Abstract

The study looked at the factors affecting the development of the Kenyan stock market. The analysis was based on the effect of factors on the development of the NSE by examining the following characteristics: The legal and regulatory framework, Information disclosure requirements, Transparency of transactions, Accounting and auditing standards, Transaction costs, Delivery and settlement, Barriers to entry and exit, Taxation of investment income, Public knowledge of securities markets plus any other factors emerging in the course of the study. Primary data was collected by a self administered questionnaire. A semi structured questionnaire based on a five point Likert scale was used. The data collected for the study was analyzed using factor analysis technique. Descriptive statistics were used to analyze data by way of frequency tables, percentage proportions and mean scores while content analysis was applied to data that could not be quantified. The study established that factors particularly the legal and regulatory framework that ensures the protection and security of investors are in place, and that the call-over system of transactions is very transparent. Low levels of public awareness was found to be a major factor inhibiting the development of the stock market in Kenya It also found that the delivery and settlement of transactions are performed satisfactorily by brokers; however the introduction of a fully centralized clearing system would significantly improve upon the clearing and settlement procedures. The study further establishes that the entry into and exit from the NSE are without any significant restrictions. There is a need to educate the Kenyan public about the activities of the NSE and to promote investment in general. Also the government should give fiscal incentives in the form of taxation in favor of listed companies, and to pursue prudent macroeconomic policies, particularly in the area of inflation management. A regular review of the legal and regulatory framework within which the investment laws operate is necessary to boost the confidence of investors.