Loading...
Please wait, while we are loading the content...
Similar Documents
Factors influencing cross-listing decision by Kenya Commercial Bank
| Content Provider | Semantic Scholar |
|---|---|
| Author | Mageto, Margaret N. |
| Copyright Year | 2010 |
| Abstract | This study examined the factors influencing the decision to cross-list shares at the Kenya Commercial Bank over the period 2008 to 2009.There are four main findings. First, the decision to cross list was influenced by the bank’s regional expansion strategy. The bank’s main aim is to be present in the whole Southern, Eastern and Central Africa region. It also wants to be a key player in commercial banking in the region. Secondly, the decision to cross-list was influenced by the firm level factors such as growth in size, increased regional presence and visibility and risk diversification. Thirdly, the decision to cross-list was influenced by environmental factors such as economic growth within the region, political stability, financial development and favorable regulatory regimes. Fourthly, the need to become a big regional player in the financial services industry influenced the Bank to cross-list her shares. This could be achieved partly through leveraging the bank’s brand in the region. CHAPTER ONE INTRODUCTION 1.1 Background of the Study Cross-listing refers to the process by which a firm incorporated in one country elects to list its equity on the public stock market of another country. There are so many factors that may motivate a firm to cross-list its shares. Some of these factors are the desire to obtain capital at a lower rate, achieve a higher share-valuation, enjoy increased liquidity and market depth for its shares and obtain greater market share for its products and services. There is also the desire to improve corporate governance. Privatization, the sale of previously state-owned enterprises (SOEs) to private investors, has transformed financial markets around the world. An economic and political event as profound as privatization raises many important questions. Such questions include: why do governments privatize?, how do governments privatize?, and where (in which market) do governments privatize? As summarized in Megginson and Netter (2001), financial economists have thoroughly examined the “why” question (see, for example, Megginson et al. (1994), Dewenter and Malatesta (1997), and Boubakri and Cosset (1998)) and the “how” question (see, for example, Jones et al. (1999), Boycko, Shleifer, and Vishny (1999), and Megginson et al. (2004)). On the other hand, the “where” question has received less attention. This study aims at identifying the factors that affect a firm’s decisions as to where to cross list their shares. Specifically, we examine the firm-level, institution-level factors and environmental factors that may affect why some shareissue are done exclusively on domestic equity markets while others involve crosslistings. 1.1.1 Cross Listing of Shares The focus on cross-listing decisions by firms is of significance of these share offerings. Bortolotti et al. (2002), Megginson and Netter (2001), and Boutchkova and Megginson (2000) found that initial public offerings involving privatization (IPOIP) are very large and very important equity offerings. Furthermore, Bortolotti et al. (2002) noted that of the world’s 21 largest equity offerings, 15 of these IPOIPs involved listing shares on more than one exchange. Thus, since they typically involve cross-listings, an understanding of IPOIPs is critical to understanding cross-listing in general. Indeed, in his seminal survey of the cross-listing literature, Karolyi (1998) examines firms involved in privatizations (Telefonos de Chile, Huaneng Power, and Deutsche Telekom) as his three examples of reasons for cross-listing. Consequently, to illuminate these substantial stock offerings, this focuses on factors driving the cross-listing decisions of firms on the Nairobi Stock Exchange (NSE). Furthermore, globalization has intensified competition between stock exchanges thus increasing the importance of where the firm cross lists its shares. Zingales (2007), Ernst and Young (2007), and Karolyi (1998) show how globalization of capital markets has intensified the efforts of the world’s stock markets to attract the largest capital flows. Therefore, to better understand how exchanges compete, we need to more closely consider how firms make decisions about the choice of a cross-listing location. In this empirical study we seek specific firm-level, institution-level and environmental factors that may influence a firm’s decision to cross list its shares on other stock exchanges in the world. 1.1.2 Kenya Commercial Bank (KCB) Kenya Commercial Bank was formed after the nationalization of the National and Grindlays Bank in 1970. It was the third parastatal commercial bank to be formed after the Cooperative Bank and the National bank, which were formed in 1965 and 1968, respectively (Brownbridge, 1998). The Kenya Commercial Bank has had commercial objectives. Initially it had some development objectives as well. It had been under a management contract by Grindlays up to the mid 1980s. Comparatively, KCB has been relatively free from government interference/influence compared to the National Bank of Kenya (NBK) (Brownbridge, 1998). In terms of total assets and customer deposits, KCB hold 15.75 and 14.13, respectively, as at the end of 2008 (Banking Survey, 2009). It also has the largest branch network in the country. KCB has mobilized a large proportion of the customer deposits from the public sector and a significant part of their loan portfolio is to the public sector (Kariuki, 1993). From 1986 up to the present, KCB has launched a major expansion program nationally and regionally. The focus has been extending financial services to the unbaked population nationally and in the East and Central African region. The impact of implementing these expansion programs on profits was negative in the initial years. Many branches could not break-even. However, in the recent past, KCB has recorded impressive returns, which have acted as the impetus for regional expansion. Unlike NBK, KCB benefited from the management and commercial banking culture of its immediate predecessor, Grindlays Bank. This ensured that KCB avoided the commercial mistakes that NBK committed. For instance, KCB avoided accumulating a large share of non-performing loans on its books through prudent lending. It was also able to obtain its financing at low cost thereby boosting significantly its profitability. Kenya Commercial Bank has issued new shares on the Nairobi Stock Exchange, the Kampala Stock Exchange, the Dar es Salaam Stock Exchange and lately, on the Rwanda Stock Exchange 1.2 Statement of the Problem There is extensive literature that examines cross-listings and the impact on corporate governance (Coffee, (1999); 2002; Stultze, (1999); La Porta et al; (1997); (1998); (1999); (2000); (2002). However, there are several unanswered questions. One of the most important void in the literature is the empirical evidence on the determinants of firms’ cross-listing decision on the Nairobi Stock Exchange. Furthermore, irrespective of country context, evidence on the determinants of the firms’ cross listing decision is mixed (Doidge, et al, 2006; 2007; Reese and Weisbach, 2000; Johnson, et al., 2000). More specifically, is it through improved corporate governance? Or is it due to other factors like improved ability to raise capital on favourable terms? In Kenya, Nyamute (1998) examined the influence of macro economic factors on stock returns. Kimani (2008) studied the effect of commercial Bank efficiency on stock returns in Kenya. Nzioka (2007) examined the impact of management experience on the efficiency of commercial banks in Kenya. Available literature on the relationships between firm value and efficiency is still limited. More so the literature directly examining the factors influencing firm’s decision to cross list. This study aims at contributing toward filling this gap by answering the question: What factors influence Kenya commercial bank’s decision to cross list her shares? 1.3 Objective of the Study The objective of this study is to determine the factors that influenced Kenya Commercial Bank’s decision to cross-list her shares. 1.4 Importance of the Study The question of what factors influence the firm’s cross listing decision is important to shareholders and other financiers of corporate firms. The cross listing decision influences the corporate governance issues of the firm and its liquidity. These two factors are not only important to shareholders but also to the management of the company. Competitors are keen to know the rationale behind a particular firm’s decision to cross list. This is important in order for them to compete effectively if they can access the advantages that a cross listed competitor enjoys. Finance directors and corporate treasurers need information to explain changes in their competitors’ agility, profitability and value. If cross-listing affects these variable positively then it will be an incentive to other firms to cross-list. Another group that may benefit from this study is central bankers and regulators, who seek to develop local capital markets and evaluate their policy or systemic implications. Knowing which factors influence cross-listing of shares will help them to make local capital markets to foreign firms. This improves financial development and economic growth. CHAPTER TWO LITERATURE REVIEW 2. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | http://erepository.uonbi.ac.ke/bitstream/handle/11295/5750/Mageto_Factors%20influencing%20cross-listing%20decision%20by%20Kenya%20commercial%20bank.pdf?isAllowed=y&sequence=1 |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
