Abstract:
The purpose of this study was to assess the determinants on financial risk on
Companies listed on the Nairobi Securities Exchange (NSE) in Kenya. The
study used the existing theoretical underpinnings to identify these determinants
and then the purposive sampling method to assess their impact. The study was
guided by research objectives which include; assessing how the level of
financial leverage, accessibility to financial information, capital structure, cost
of capital, and the existing prudential supervision affect the financial risk of
companies listed on the NSE in Kenya. The research design used in this study
was mixed design employing both the qualitative and quantitative design.
Secondary data was extracted from the NSE database, Capital Markets
Authority (CMA) database, journals and other publications. Primary data was
acquired through administering questionnaires and interviews to a purposive
sample of Chief Executive Officers, Chief Financial Officers or Risk Officers
of companies publicly listed on the NSE as at 2012. A sample of forty five out
of a target population of sixty Companies publicly listed as at January 2012
was extracted from the Nairobi Securities Exchange website. A pre-test on a
different sample gave a cronbach’s alpha greater than 0.7 for all the variables.
Data analysis was by descriptive statistics and inferential statistics using
Statistical Packages for Social Sciences (SPSS) version 24. Analysis of
variance (ANOVA) was used to establish if there is a statistical significance
between the observed and expected values with the Pearson chi square giving
the degree significance of the relations, hence establishing the hypothesis. The
results indicate that four of the variables, level of leverage, cost of capital,
capital structure and prudential supervision have a positive and significant
effect on financial risk. Accessibility of financial information has a weak
negative correlation with financial risk of listed companies on the NSE, typical
with financial markets which are not strong. The study gives recommendations
which include the adoption of proper financial risk management systems and
improving the efficiency of prudential regulation and supervision procedures in
order to improve compliance.