A Comparative Study of the Returns of Quoted Sin and Non Sin Stocks at the Nairobi Securities Exchange

Abstract

Sin stocks are of increased interest since more and more investors and fund managers avoid them while integrating social screening with their investment decisions. As a reflection of social norms, socially responsible investing has become a niche of its own in determining investors’ portfolio decisions in the past decade. The study adopted an explanatory research design with the population consisting of all firms listen in the NSE. The sample of the study consisted of the top 20 NSE firms. Coincidentally, there are two sin stocks in this index. Therefore, the study grouped 18 firms into the non sinstock category and another 2 firms (BAT ad EABL) into the sinstock category. Secondary data used secondary data sources in gathering data for analysis which was done using the Statistical Package for Social Sciences (SPSS version 20) to generate the descriptive statistics and also to generate inferential results. T-Tests used to check whether the mean returns of Sin stock differ from the mean returns of non sin stocks. Results on the analysis of variance (ANOVA) indicate that the overall model was significant as indicated by an F statistic of 4.904 and p value of 0.001. These results imply that the independent variables namely gearing ratio, log of total assets and log of profitability were satisfactory in comparing the returns of sinstocks and non sinstocks. Regression analysis results showed that the relationship between return and gearing ratio, size of the firm and profitability was positive which means that an increase in either of them would lead to a positive increase in return. However the variables were insignificant as there probability values were 0.178, 0.215 and 0.412 respectively which indicates that the variables were not the key determinants of return. Further comparative results, T-tests statistics indicate that sinstocks have higher capital gains, high expected return and dividends than in nonsinstocks. The study provides recommendations to investors who may want to choose on which stocks to invest in and to other researchers, who may want to contribute to the continuous debate of sin stocks returns and non sinstocks returns. Suggested area for further reading could one that compares the majority group of investors in both sin and non sin stocks in Kenya.