The Relationship Between Microeconomic Variables And Institutional Efficiency Of Companies Listed At The Nairobi Securities Exchange In Kenya

Abstract

In any economy, sectors of Agriculture, Commercial and Services, Telecommunication and Technology, Automobile and Accessories, Banking, Insurance, Investment, Manufacturing and Allied, Construction and Allied, Energy and Petroleum, Growth and Enterprise Segment are the engine that drives economic growth through efficient allocation of resources to productive units. Along the time, the relationship between economic factors and firm efficiency has been studied in the literature a lot. Approaches are numerous and very different. Since firm efficiency can be influenced by factors that can be controlled by the firm, as well as by factors that are not under the control of such firms the study sought to establish the relationship between micro-economic variables and institutional efficiency of companies listed in the NSE in Kenya. The study adopted a descriptive research design. The population of interest for this study was all the 60 companies listed on NSE in Kenya. Thus it will be a census survey. The study applied secondary data which is extracted from the firms’ annual reports and financial statements for the fiveyear period commencing 2010 up to 2014. The data collected were therefore cleaned, coded and systematically organized in a manner that facilitates analysis using the Statistical Package for Social Sciences (SPSS). In order to test the relationship between the variables the inferential tests including the regression analysis was used. The study found that the four variables contribute to 70.9% of institutional efficiency and that a unit increase in Capitalization leads to a 0.118 increase in institutional efficiency. From the study findings and discussion, the study concludes that microeconomic variables affect the level of institutional efficiency of companies listed in the NSE. The conclusion is that microeconomic variables had a positive and significant effect on institutional efficiency of companies listed in the NSE for the period of this study. The study recommends that companies listed in NSE should approve strategy and significant policies related to the management of liquidity risk under both normal and stressed conditions and review and approve these policies frequently as need arise. Also, it was recommended that a structure should be put in place to effectively execute financial strategies and also develop methodologies and policies to determine the level of earmarked liquid assets.