Quoted Equity Investments and Financial Performance of Pension Funds in Kenya
DOI:
https://doi.org/10.47604/ijfa.1645Keywords:
Quoted Equity, Financial Performance, Investment Policy StatementAbstract
Purpose: This study is inspired by the need to investigate the contribution of quoted equity to financial performance of pension funds in Kenya
Methodology: The study used a descriptive research design with data collection form used to gather secondary data. The target population for this study was 1,258 registered schemes as per RBA as of 31 December 2021. The sample consisted of 294 registered schemes. Secondary data was obtained from the Retirement Benefits Authority (RBA) for the study variables for the six-year period between 2016- 2021. The data was subjected to diagnostic tests and analyzed using multiple linear regression method.
Findings: Regression results on the influence of quoted equity on the performance of pension funds shows that the coefficient had a negative and significant impact on performance of firms, p value 0.000 which was smaller than 0.05 level of significance. This shows that quoted equity had a negative impact on the performance of firms. In addition, 16.6% of the variation in performance of firms is explained by quoted equity. The study findings echo policy discourses suggesting that quoted equity investments may be riskier and therefore need for increased risk premium to cushion investors against increased risks
Unique Contributions to Theory, Practice and Policy: The study validates the modern portfolio theory whose premise is selection and construction of asset portfolios to maximize the portfolio expected return and the concurrently minimize the attendant risk. The study can help policy makers such as Retirement Benefits Authority (RBA) in Kenya review investment ceilings imposed on quoted equity The trustees and fund managers can use the study findings to determine proportion of quoted equity investments in the investment policy that is optimal given risk characteristic of quoted equity as an asset class.
Downloads
References
Alda, M. (2017). The relationship between pension funds and the stock market: Does the aging population of Europe affect it? International Review of Financial Analysis, 49, January 2017, 83-97. https://doi.org/10.1016/j.irfa.2016.12.008.
Androniceanu, A. (2017). The three-dimensional approach of Total Quality Management, an essential strategic option for business excellence. Amfiteatru Economic, 19(44), 61-78
Douglas, G., & Roberts-Sklar, M. (2018). What drives UK defined benefit pension funds' investment behaviour?.
Gakure SW & Gekara M (2015) Analysis of the financial performance of registered individual retirement schemes in Kenya. IJCBSS-International Journal of Current Business and Social Sciences
Hainaut. (2014). Impulse control of pension fund contributions, in a regime switching economy. European Journal of Operational Research, 239 (3), 810-819. https://doi.org/10.1016/j.ejor.2014.06.016.https://www.standardmedia.co.ke/business/article/2000223418
Jung, H., Pirog, M., & Lee, S. K. (2016). Do public pensions crowd out private transfers to the elderly? evidence from South Korea. Journal of Pension Economics & Finance, 15(4), 455-477.
MaÄÃ, J., & Hovorková, V. V. (2017). Loan versus Bond Financing of Czech Companies and the influence of the Global Recession. Journal of Competitiveness, 9(1).
Mollik, A. T., & Bepari, M. K. (2015). Risk-return trade-off in emerging markets: evidence from Dhaka Stock Exchange Bangladesh. Australasian Accounting, Business and Finance Journal, 9(1), 71-88.
Morales, W., Ubeda, F., & Barbero, J. (2017). Pension Funds Development and Its Impact on Economic Growth: The Moderating Effect of the Financial System. Available at SSRN 3771370.
Mwachanya M. (2015). Impact of Asset Allocation on Financial Performance of Pension Funds in Kenya
Mwangi, S. C. (2018). Effect Of Asset Allocation On The Financial Performance Of Individual Benefit Pension Schemes In Kenya (Doctoral dissertation, KCA University).
Ndung'u, M. N. (2016). The Effect of Asset Allocation on The Financial Performance of Pension Schemes in Kenya (Doctoral dissertation, University of Nairobi).
Njeru, S. E., Dominic, N. M., & Fredrick, K. (2015). Evaluation of financial performance on portfolio holdings held by pension funds in Kenya. European Scientific Journal, 11(16).
Njeru, S. E., Dominic, N. M., & Fredrick, K. (2015). Evaluation of financial performance on portfolio holdings held by pension funds in Kenya. European Scientific Journal, 11(16).
Ornelas, J. R. H., & de Almeida Silva Jr, A. F. (2015). Testing the liquidity preference hypothesis using survey forecasts. Emerging Markets Review, 23, 173-185.
Owinyo, J. A. (2017). Assessment of determinants on the financial performance of retirement benefit schemes in Kenya (Doctoral dissertation, Strathmore University).
Owinyo, J. A. (2017). Evaluation of determinants on the financial performance of retirement benefit schemes in Kenya (Doctoral dissertation, Strathmore University).
Oyoo, J. O. (2020). Factors Affecting Financial Performance of Pension Schemes In Kenya (Doctoral dissertation, KCA University).
Papik, M. (2017). Composition of equity and mixed pension funds in Slovakia. Oeconomia Copernicana, 8(1), 51-64. https://doi.org/10.24136/oc.v8i1.4
Sanga. A (2016). An Assessment of Financial Performance of Pension Funds: A Survey of selected pension Funds in Tanzania (Masters dissertation, Mzumbe University- Tanzania)
Wang, Q., & Peng, J. (2016). An empirical analysis of state and local public pension plan funded ratio change, 2001-2009. The American Review of Public Administration, 46(1), 75-91.
Wanjohi, E. N., & Kariuki, P. W. (2019). The relationship between asset allocation and fund performance of occupational pension schemes in Kenya. International Academic Journal of Economics and Finance, 3(4), 47-63.
Wiafe, O. K., Basu, A. K., & Chen, J. (2017). The effects of age pension on retirement drawdown choices. Finance Research Letters, 20 (1), 81-87. https://doi.org/10.1016/ j.frl.2016.09.019.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2022 Roba Adan Abdi Boyante, Prof. Willy Muturi, Dr. Mouni Gekara
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
