A study of factors that institutional investors consider in making decision on investments in shares traded at the Nairobi Stock Exchange

Abstract

This study was an exploratory study on factors that Institutional Investors consider when making investment decision. Investment on ordinary shares of quoted companies at the Nairobi Stock Exchange. Those who may find the research useful include the Capital Markets Authority; local and foreign, current and potential, individual and institutional investors, the Nairobi Stock Exchange and the other regulators. The emphasis on this study was on institutional investors at the Nairobi Stock Exchange who are a major player in the market, holding more than 80 percent all the outstanding ordinary shares at the stock exchange. The objectives of the study were to determine the relative importance of the investment factors identified in the fmance literature to insurance companies, retirement benefit schemes and fund management firms in investment decisions. Decisions on ordinary shares of quoted companies at the Nairobi Stock Exchange. This was to enable us list the factors of utmost importance to the institutional in~stors. Another objective was to determine the relationship between selected characteristics of the institutional investors and the factors considered in making investment decisions on ordinary shares of quoted companies at the Nairobi Stock Exchange. These are characteristics such as total assets, turnover and the number of employees IX The primary data was obtained through scheduled and structured questionnaires. This had both open ended and close ended questions from a sample of 45 institutional investors comprising of 15 retirement benefit schemes, 15 insurance companies and 15 fund management based in Nairobi who had invested in ordinary shares of listed companies at the NSE as at 31st December 1998. The data was analyzed through frequency tables, percentages and bar charts and correlation, rank and percentiles, and means and standard deviations. The findings confirmed that the factors identified in the finance literature are considered in the investment decisions by the institution investors at the Nairobi Stock Exchange. The institutional investors consider the relevance of the factors different. Insurance companies and fund management companies considering company factors more important in their investment decision making than any other factor while retirement benefit schemes consider industry factors more relevant in their investment decisions. The following seven factors were found to be the most relevant in the overall group investment decision making on ordinary ~ares. They had the highest means and the least standard deviations: -quality of management: technological advancements, changes ill investments trends, amount of capital, safety of the principal capital, return on equity, company growth in sales