A survey on use of marketable securities by firms quoted at Nairobi Stock Exchange

Abstract

The study set to investigate the use of marketable securities by firms listed at Nairobi Stock Exchange. This was done with the objective of finding out the extent of use of marketable securities by managers. The study identifies the motives and factors that managers consider while choosing marketable securities. The assumption in this study is that managers maximise return while minimising risk. Data was collected by structured questionnaires and through examination of annual report. The findings were that, firstly, firms hold marketable securities for precautionary purpose with most firms holding commercial paper. The decision to invest depends on certainty of the cash flow pattern of the investing firm and also accessibility to capital when need arises. Secondly, firms that invest in marketable securities regard the investments yield as very important. The yield is a critical variable because it compares the return from an investment to the existing market price. It is also relied on in estimating the risk of an investment. Thirdly, majority of the firms that invest in marketable securities have specialised department who undertake the investment activities. Some firms consider investing in marketable securities as part time job and a few outsource this function. The conclusion is that firms invest in marketable securities for precautionary purpose and to earn yield till need for it arises. However, amount to hold for precautionary purpose will depend on individual firms attitude towards risk and the quality of marketable securities available.