EFFECT OF INVESTMENT INCENTIVES ON STOCK MARKET PERFORMANCE: SURVEY OF FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE

Abstract

Stock market investment incentives were introduced with the aim of burgeoning stock market performance through intensified listing at the Nairobi Securities Exchange (NSE). It has been observed that NSE’s performance has not improved despite those investment incentives. It is not clear whether stock market incentives promote stock market performance or not. The study objectives were to determine the effect of tax incentives, liquidity incentives, growth incentives and visibility incentives on stock market performance in Kenya and to investigate the moderating effect of investors’ perception on the relationship between stock market incentives and performance for firms listed at NSE. This study adopted a descriptive research design with a study population of 60 listed firms at NSE. A sample of 30 listed firms were selected through stratified and systematic random sampling techniques out of which 150 respondents were selected to form the actual sample size for the study. The study used both primary and secondary data sources in gathering data for analysis. Data collection involved self-administration of questionnaires. The K-density curve on normality test revealed that the data was normally distributed with the variables assumed to be univariate normal since the skewness statistic was 0.07 which is within the interval (-3.0, 3.0) and the kurtosis statistic was -1.06 lying in the interval (-10.0, 10.0). The average Cronbach’s apha value was 0.73025 indicating that the data collection instruments were reliable. The Hausman test’s chi square statistic value was 3.2267 with Chi square df of 3 and probability of 0.26543 which indicates that the prefered model was the random effects model as opposed to the fixed effects model. Autocorrelation test results were all within 1.5<d<2.5 which symbolized the absence of both negative and positive serial correlation. The VIF values for multicollinearity test ranged between 1.002 and 1.265 which indicated the absence of multicollinearity problems since all the values were below the range of between 5 and 10 which could be considered as potentially problematic. The findings from this study reveal that liquidity incentives and visibility incentives affects NSE performance. Tax incentives and growth incentives were found to have an insignificant effect on NSE performance. Investors’ Perceptions were found to have a strong moderating effect on all incentives. It is recommended that the governments should put in place predictable, clear tax laws and transparent tax administration that would provide conducive and favorable market opportunities to the investors.