Determinants of Issuance of Corporate Bonds by Listed Firms in the Nairobi Securities Exchange

Abstract

The main purpose of the study was to investigate th e determinants of corporate bonds issuance by listed firms in the Nairobi Securities Exchange, Kenya. The study used both descriptive and quantitative research designs. The population of the study was made up of all the eleven companies which have issued Corpo rate Bonds in Kenya from 2001 to 2013. From the population of all eleven companies t hat issued CB during the period under the study, only those listed on the Nairobi S ecurities Exchange were selected this was due to the availability of data and other infor mation as they were required by the Companies Act to publish their annual report. The s tudy employed the use of secondary data, from which data was largely quantitative in n ature was extracted from audited annual reports and financial statements of individu al sampled companies sourced from CMA, NSE and CBK. Multiple regression analysis was used to determine how factors identified above relate to the Corporate Bond amoun t issued as presented in the previous chapter. Descriptive statistics like frequencies, r anking and mean were used. This was done using SPSS Statistical computer package and ad vanced MS Excel. The study findings established that tenure period of corporat e bonds affects their demand. Investors being rational are skeptical about postponing consu mption of money for longer period of time and would rather invest in ‘short-term’ period s. The higher the frequency of redemption of the principle reduces the return of t he bonds as it affect interest generating ability of the bonds, thus investors don’t prefer h igher short redemption periods. long subscription period of corporate bonds affect inves tments in the same. This follows that some investors take longer to decide on whether to invest in the bond and/or others look to financial resources for the same thus short peri od cut them off. Interest rate is the major revenue centre for corporate bonds, thus, the higher the interest, the higher the return. Thus, investors prefer higher interest gene rating bonds. The study recommends that in order to increase bond subscription, the is suers should address the regulations governing the particular issue. Of more importance are the regulations on the tenure period which should be short and principle redempti on structure to be reduced as this increases the interest generating ability of the bo nds making it more attractive