Systematic risk and business risk: a case of companies listed at the Nairobi stock exchange

Abstract

The objectives of this study were firstly to find out whether a relationship exists between business risk and systematic risk The other objective was to determine whether companies with high return exhibit high risk. This required the use of secondary data covering a period of five years (1996 to 2000) derived from the financial statements and from Nairobi Stock Exchange price database On the first objective, the study revealed that a relationship between systematic risk and business risk holds for selected and not all companies. However for the market as whole, the study revealed that there is a relationship between systematic risk and business risk. On the second objective the study showed that, it is not always the case that companies with high risk are those with high returns. Only a small number of companies with high risk are compensated with a high return. This was brought out by comparing the ranking of the variance of earnings against the ranking of weighted return, capital gain and non-weighted return.