Effect of Financial Market Infrastructure on Issuance of Corporate Bonds at the Nairobi Securities Exchange

Abstract

Corporate bonds are debt securities issued by private and public corporations (Roldes et al 2004).The role of corporate bonds in achieving the vision 2030 cannot be down played. Corporate bonds are considered as the source of diffusing stresses on the banking sector by diversifying credit risks across the economy, interest rate and refunding risk, Supplying long-term funds for long-term investment needs, lowering funding costs by avoiding a liquidity premium and providing products with flexibility to meet the specific. The main aim of this study was to investigate the effect of financial market infrastructure on issuance of corporate bonds of firms listed at the Nairobi security exchange. The study employed descriptive survey design with the population of the study being 60 companies listed on the NSE. The study used secondary data from annual reports of the quoted companies over a period of five years. The data was analyzed through the use of Statistical Package for Social Sciences (SPSS). Results from the study indicate that most firms in the NSE use more debt or long term liability as a source of financing than equity capital from shareholders. ANOVA statistics presented showed that the overall model was statistically significant as this was supported by an F statistic of 3.4 and a probability (p) value of 0.021. Regression of coefficients results showed that there was a positive relationship between corporate bond and payment, settlement system, and recording system whose beta coefficients are 0.072, 0.000 and 0.215 respectively. Statistically significant variables in the study were payment, settlement system, and recording system of the firm as they had p values of 0.000, 0.008 and 0.034 which is lower than the probability conventional of 0.05. These findings show that companies in the NSE have good return on assets and have the ability to meet their short term obligations when they fall due. The researcher suggests a study be conducted through a survey of the firms which have issued corporate bond and not listed in Nairobi Securities Exchange. This will allow for a comparison of the findings to come up with recommendations that can be applicable to all the players in the corporate world in Kenya.