Investment in Equity and Financial Performance of Tier Three Commercial Banks in Kenya
DOI:
https://doi.org/10.47604/ijfa.3755Keywords:
Investment, Equity, Financial Performance, Tier Three Commercial Banks, KenyaAbstract
Purpose: Tier III commercial banks play a pivotal role in the Kenyan economy as intermediaries of connecting investors and savers to achieve the economic meaning of financial inclusion. These commercial banks effectively use their limited resources to perform the roles of extending banking services to the needy areas and the integrated development of Kenya’s economy. However, the CBK reports pointed out several tier three commercial banks facing issues with their financial performance. Non-performing loans among the Tier III banks in Kenya have been rising over the past ten years, threatening the sustainability of these institutions. The aim was to establish the effects of investment in equity on the financial performance of tier three commercial banks in Kenya. The CAPM was employed to explain the study objective.
Methodology: A descriptive research design was adopted for a target population of 22 Tier III commercial banks in Kenya. Census technique and secondary data from 2015 to 2024, using the secondary data collection sheet, were utilized. Inferential statistical tools were employed that included Pearson’s Product-Moment correlation and panel regression analysis.
Findings: The study finding revealed that equity investment had a significant positive effect with β = 0.3386 (p = 0.0000). The result further indicates that equity investment explained approximately 63.11% of the variation in financial performance, highlighting the critical role of equity investments in enhancing profitability.
Unique Contribution to Theory, Practice and Policy: The study also recommended that policymakers, particularly CBK, should develop policies that promote investment diversification, improve access to capital markets, and enhance regulatory frameworks to support efficient investment practices among Tier Three banks.
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