Effects of hedging securities on financial performance of Commercial Banks in Nairobi city county, Kenya

Abstract

The study focused on determining the effects of hedging securities on financial performance of commercial banks in Nairobi City County, Kenya. The study was guided by the specific objectives such as hedging strategies, hedging risk exposure, and hedging relationship. The study used expected utility theory and resource-based view theory in order to ascertain and validate the findings of the study. The study findings are important to policy makers, government stakeholders as well as private enterprises in implementing hedging securities on financial performance. The study targeted a population of 350 and a sample size of 78 respondents drawn from selected commercial banks in Nairobi city County. The study adopted a descriptive research design. The study used stratified random sampling procedure. In this sampling technique, the population was divided into smaller groups known as strata. The strata comprised of the selected commercial banks in Nairobi city County. In addition, the respondents were randomly sampled from each stratum. The stratum reduced the amount of tension and suspense of respondents towards the study hence provided honesty and reliable information. Data was collected from the selected commercial banks in Kenya where the respondents were issued with structured questionnaires to enhance the process of data collection. The structured questionnaire was subdivided into six main sections. Section one was collection of demographic information of the respondents. The rest of the sections collected data based on the independent and dependent variables of the study. Pilot study was conducted at 10% of the target population to determine the feasibility of conducting a large-scale study. The pilot study helped to inform the researcher on the strength or weakness of the study. The researcher prepared 78 questionnaires for distribution to the respondents. The response rate obtained from the respondents was 53 which represented 67.9% which was sufficient to carry out the study. A multiple regression analysis was conducted to test the influence among predictor variables. The research used statistical package for social sciences (SPSS Version 25) to code, enter and compute the measurements of the multiple regressions. Findings were recorded on a five-point Likert scale anchored on Strongly Disagree (1), Disagree (2), Neutral (3), Agree (4) and Strongly Agree (5). Statistically, the study indicated that there existed a significant relationship between hedging strategies and hedging relationship with a coefficient value of 0.925 (at significant level of 0.05). Financial performance also was shown to contribute up to 72% on hedging strategies. Also, a strong relationship existed between hedging risk exposure and hedging strategies with a coefficient value of 92.5% (at a significance level of 0.05). Hedging relationship and financial performance of commercial banks in Kenya exhibited a strong relationship at a coefficient value of 83.6% (at a significance level of 0.05). The study recommended that the beneficiaries of the findings should make informed decisions based on the findings of the study.