LIQUIDITY RISK AND FINANCIAL PERFORMANCE OF INVESTMENT BANKS IN KENYA

Abstract

This paper addresses the ascendancy of liquidity risks on performance of investment
banks in Kenya. Philosophically, the study was guided by positivism. The study applied
explanatory sequential mixed methods research design which allows for qualitative
analysis to help explain or elaborate on quantitative results. The population of the study
was all the 16 investment banks operating in Kenya and licenced by the Capital Markets
Authority. Quantitative data was obtained from the annual financial statements of the
16 investment banks. The data was collected using data collection sheets for the years
2011 to 2019 to compute financial ratios. Primary data was analysed qualitatively using
thematic analysis to validate the quantitative data results (using interview guide tool)
from 16 finance and risk managers working in the investment banks in Kenya. Both
descriptive and inferential analysis methods were employed in the analysis. The
regression results reveal that liquidity risk by investment banks in Kenya has a low but
negative and insignificant effect on financial performance of investment banks in Kenya
(Coef. =-0.0058, p=0.325). From the empirical evidence and conclusion, this study
recommends investment banks to have improved systems of managing clients’ money,
they should also diversify their financing sources and move from more conservative
equity financing to debt financing. Moreover, investment banks should have a
requirement for banks to hold enough liquid assets to survive for a period of time even
without the inflow of outside funds.
Keywords: Liquidity Risk, Financial Risk, Financial Performance.