The Influence of Selected Factors on the Behaviour of Share Prices of Commercial Banks Listed at the Nairobi Securities Exchange

Abstract

The factors affecting the price of an equity share can be viewed from the macro and micro economic perspectives. These factors will affect the demand and supply of a stock in the market which in turn will affect the price of the stock. The purpose of the study was to determine the influence of selected factors on the behavior of share prices of commercial banks listed at the Nairobi Securities Exchange (NSE). Specifically, the study determined the influence of dividend per share on the behavior of share prices of commercial banks listed at NSE; the influence of financial leverage on the behavior of share prices of commercial banks listed at NSE and the influence of book value per share on the behavior of share prices of commercial banks listed at NSE. The study used a descriptive research design, where secondary data was in the form of published financial statements of the eleven commercial banks listed at NSE and the daily share prices of the commercial banks which are normally given in the NSE website. Statistical Packages for Social Sciences (SPSS) was used to facilitate the analysis and interpretation of data and the results obtained was presented using tables, bar charts and line graphs for easy of interpretation. The correlation results indicated that there was a strong positive relationship between dividend per share with market price per share of commercial banks listed at the NSE; a relatively strong positive relationship between book value per share with market price per share of commercial banks listed at the NSE and a weak positive relationship between financial leverage with market price per share of commercial banks listed at the NSE. The regression analysis and test of hypothesis showed that dividend per share and book value per share had a significant effect while financial leverage had no significant effect on the market price per share of commercial banks. The study recommends that commercial banks should structure and implement strategies aimed at improving profitability which in turn increases the amount of dividends paid out to the shareholders and increase in book value per share thus improving shareholders value and the image of the bank through better market share prices. Capital market authority, NSE and the government should formulate and implement policies related to dividends payout by companies listed in the NSE so as to encourage investments and spur economic growth. The investors on the other hand should make informed decisions on which Commercial Banks to invest on based on the level of dividends they pay out to its shareholders and the value of shareholders’ funds which affects the book value per share. They should invest in banks that pay out high dividends and have high book value per share. Further research should focus on the limitations of this study since numerous expansions of this research are possible