The drivers of return for firms listed on the Nairobi stock exchange.

Abstract

The research provides a test on what are the drivers of return for the firms listed on the Nairobi stock exchange. The data collected covered the period covering 2002 December to 2008 December. The focus was to come up with the geometric stock returns on the stock prices for each year. Thus the closing month stock prices were used to represent each month arid the base period used was December ~stock prices. The independent variables which were used in the research were the book to market, cash flow ratio, the dividend yield, firm size and the profitability ratio. This study mirrors studies done earlier by fama and French (1992), Chan's Hamao and lakoinshook (1996) Kothari; among other researchers. These studies yielded varying results as others.are in agreement that these variables drive the stock return. The data used in this research was collected from two places; Nairobi stock exchange provided. the accounting data of the firms and the Nation Media group provided the data about the share daily prices. This study focused on yearly performance of the firms to come up with the regression models for all the six years and finally came up with a regression model using the data . for all the six years. Apart from the regression models the t-statistics were computed for each year and for combined six year. The correlation between the variables was done for each year. The conclusion drawn from the.research was that the in Kenya stock returns are weakly driven by the firm specific factors. The sign on the independent variables are mixed having an indication that the disturbance variable is significant. The stock returns for firms listed in the Nairobi stock exchange are strongly explained by other factors which were being covered in this research by the error term.