The Effect of Market Risk on Financial Performance of Commercial Banks in Kenya

Muriithi, Jane Gathigia; Muturi, Willy; Waweru, Kennedy Munyua

doi:10.11648/j.jfa.20160404.18

Cited by 13 publications

(25 citation statements)

References 8 publications

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“…Many empirical studies have analyzed the effect of financial risks on the financial performance of commercial banks. Notably, most studies of the impact of market risk on performance have focused on the banking sector using bank-specific variables as market risk indicators (Nimalathasan and Puwanenthiren 2012;Ngalawa and Ngare 2013;Muriithi et al 2016). For instance, Nimalathasan and Puwanenthiren (2012) used a measure of the degree of financial leverage to examine the effect of market risk on the return of equity of listed financial institutions in Sri Lanka over the period 2007-2011.…”

Section: Literature Review and Testable Hypothesesmentioning

confidence: 99%

“…They found a significant positive association between market risk and the companies' financial performance. Muriithi et al (2016) analyzed the impact of market risk on the financial performance of 43 commercial banks in Kenya using the fixed effects model, the random effects model and the generalized method of moments (GMM) from 2005 to 2014. They used three measures of market risk, namely, the degree of financial leverage, the foreign exchange exposure risk, and the net interest margin.…”

Section: Literature Review and Testable Hypothesesmentioning

confidence: 99%

“…The authors revealed that market risk indicators had significant adverse effects on return on equity. Other studies have used different measures of market risk and control variables to analyze the relationship between financial risks and financial performance (Dempsey 2010;Siyanbola et al 2015;Wani and Dar 2015;Muriithi et al 2016; among others).…”

Section: Literature Review and Testable Hypothesesmentioning

confidence: 99%

“…According to Koch and MacDonald (2006), market risk mainly includes foreign exchange risk, interest rate risk, commodity price risk and stock price risk, referring to adverse changes in exchange rate, interest rate, and stock prices. Some studies have used alternative measures of market risk, such as the book-to-market ratio (Fama and French 1993;Chen et al 2005;Dempsey 2010;Cakici and Topyan 2014), the gearing ratio (Briston 1981;Akhtar et al 2011;Siyanbola et al 2015) and the degree of financial leverage (Abid and Mseddi 2004;Gatsi et al 2013;Muriithi et al 2016). These studies found that market risk had a significant effect on a firm's financial performance.…”

Section: Introductionmentioning

confidence: 99%

“…These studies found that market risk had a significant effect on a firm's financial performance. Most empirical studies on financial risks and financial performance have focused on the banking sector to the detriment of non-financial firms (Nimalathasan and Puwanenthiren 2012;Muriithi et al 2016;Badawi 2017;Abdellahi et al 2017;among others). Few studies have investigated the effect of market risk on the performance of non-financial firms listed in Africa.…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

Market Risk and Financial Performance of Non-Financial Companies Listed on the Moroccan Stock Exchange

Kassi

Rathnayake

Louembé

et al. 2019

Risks

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This study examines the effect of market risk on the financial performance of 31 non-financial companies listed on the Casablanca Stock Exchange (CSE) over the period 2000–2016. We utilized three alternative variables to assess financial performance, namely, the return on assets, the return on equity and the profit margin. We used the degree of financial leverage, the book-to-market ratio, and the gearing ratio as the indicators of market risk. Then, we employed the pooled OLS model, the fixed effects model, the random effects model, the difference-GMM and the system-GMM models. The results show that the different measures of market risk have significant negative influences on the companies’ financial performance. The elasticities are greater following the degree of financial leverage compared with the book-to-market ratio and the gearing ratio. In most cases, the firm’s age, the cash holdings ratio, the firm’s size, the debt-to-assets ratio, and the tangibility ratio have positive effects on financial performance, whereas the debt-to-income ratio and the stock turnover hurt the performance of these non-financial companies. Therefore, decision-makers and managers should mitigate market risk through appropriate strategies of risk management, such as derivatives and insurance techniques.

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Section: Literature Review and Testable Hypothesesmentioning

confidence: 99%

Section: Literature Review and Testable Hypothesesmentioning

confidence: 99%

Section: Literature Review and Testable Hypothesesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Market Risk and Financial Performance of Non-Financial Companies Listed on the Moroccan Stock Exchange

Kassi

Rathnayake

Louembé

et al. 2019

Risks

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Do board characteristics moderate capital adequacy regulation and bank risk-taking nexus in Sub-Saharan Africa?

Asiamah

Appiah

Badu³

2023

AJEB

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PurposeThe purpose of this paper is to examine whether board characteristics moderate the relationship between capital adequacy regulation and bank risk-taking of universal banks in Sub-Saharan Africa (SSA).Design/methodology/approachThe paper uses 700 bank-year observations of universal banks in SSA between 2009 and 2019. The paper further uses the two-step generalized method of moments as the baseline estimator.FindingsThe paper finds that capital adequacy regulation is positively related to overall bank and liquidity risks. Nonetheless, capital adequacy regulation increases credit risk in the sampled banks. The paper further reports that board characteristics individually and significantly moderate the relationship between capital adequacy regulation and risk-taking.Practical implicationsThe findings have implications for regulators of universal banks that board characteristics matter for capital adequacy regulation to impact risk-taking behavior.Originality/valueThe paper extends the existing literature on the effect of board characteristics on the capital adequacy regulations and risk-taking behavior nexus of universal banks.

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Do bank regulations matter for financial stability? Evidence from a developing economy

Atellu

Muriu

Odhiambo

2021

JFRC

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Purpose This paper aims to establish the effect of bank regulations on financial stability in Kenya. Specifically, the study seeks to uncover the effect of micro and macro prudential regulations on financial stability and their trade-offs or complementarities. Design/methodology/approach Using annual time series data over the period 1990–2017, the study uses structural equation model (SEM) estimation technique. This solves the problem of approximating measurement errors, using both latent constructs and indicator constructs. Findings Study findings reveal that macro and micro prudential regulations are significant drivers of financial stability. Further, prudential regulations are more effective when they complement each other. Research limitations/implications This study centers on how bank regulations affect financial stability. Future research could be carried out on the effect of Non-Bank Financial Institutions regulations on financial system stability. Practical implications Complementing macro and micro prudential regulation is more effective and efficient in ensuring stability of the financial system other than letting the two policy objectives operate independently. Social implications Regulatory authorities should introduce prudential regulations that would encourage innovations in the banking sector. This ensures easy deposit mobilization that enhances financial inclusion. Prudential regulations that ensure financial stability will be effective when low income earners are included in the financial system. Originality/value To the best of the authors’ knowledge, this study is the first to investigate the role of banking regulations on financial stability. This study is also pioneering in the use of SEM estimation technique, in examining how prudential regulations affect financial stability. Previous cross-country studies have focused on macro prudential regulations ignoring the importance of micro prudential regulations.

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The Effect of Market Risk on Financial Performance of Commercial Banks in Kenya

Cited by 13 publications

References 8 publications

Market Risk and Financial Performance of Non-Financial Companies Listed on the Moroccan Stock Exchange

Market Risk and Financial Performance of Non-Financial Companies Listed on the Moroccan Stock Exchange

Do board characteristics moderate capital adequacy regulation and bank risk-taking nexus in Sub-Saharan Africa?

Do bank regulations matter for financial stability? Evidence from a developing economy

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