Effect of Treasury Bills Rate on Commercial Paper Yield for Companies Listed at the Nairobi Securities Exchange

Abstract

The main purpose of this research was to determine the effect of Treasury bills rate on commercial paper (CP) yield for firms quoted on the Nairobi Securities Exchange. The study used causal research design to meet the objectives of the study. The population of this study was listed companies at the NSE that had issued CP between January 2007 and December 2011. Convenience sampling was used while data collected for this research was quantitative and secondary in nature which was sourced from CMA, NSE database and Annual Audited Financial Statements of selected companies. Regression and correlation analysis were used to determine the nature and strength between commercial paper yield (dependent) and Treasury bills (independent variables). Descriptive and inferential analysis was used in data analysis and presentation. Data analysis using SPSS version 19 resulted in a Pearson coefficient of 0.780 and p-value of 0.000 which were indicators of a strong, significant, positive relationship between Treasury bills rate and commercial paper yield. These results vindicate the existence of a relationship between Treasury bill rates and commercial paper yield for NSE listed companies. The study also found that 14 firms had a significant performance index as shown by the overall evaluation index closest to 5 in the Likert rating scale and that yearly performance improved significantly from 2007- 2011 progressively. The study recommended that companies should consider issuing commercial paper to finance their short term obligations since customers were willing to hold the instruments because of their high rate of return. The study also recommended that regulations governing commercial paper market should be more publicized to enable more companies embrace commercial paper in meeting their short term obligations as opposed to bank loans. The research was limited to a few listed companies which was the most obvious limitation. Further studies are needed for longer duration than five years while at the same time, similar studies are required to establish the effect of other instruments like corporate bonds on commercial paper yield.