Abstract: This study aimed at finding the relationship between stock market development and economic growth in Kenya. The stock market development is the independent variable and is determined variables such as market capitalization, liquidity, and stock market index. The control variable was financial depth with economic growth as the dependent variable determined by the real gross domestic product (GDP). The Kenyan stock market has made various strides in improving some of the aspects that are deemed to result in the development of the stock market and this has seen the increase in the number of listed firms on the bourse and also the improvement of regulatory laws that govern riding and disclosures. The study utilized the exploratory research design. The study targeted 65 listed firms at the Nairobi Securities Exchange but a sample of 35 listed companies was selected for the study through simple random sampling technique. This study covered the period between 2006-2015. Primary data was collected through the administration of the questionnaires. A pilot study was also conducted to test the reliability and validity of the questionnaire. The results of the study indicated that stock market capitalization, stock market liquidity, stock market index and financial depth are positively related with economic growth. Stock market capitalization, stock market liquidity, stock market index were found to be satisfactory variables in explaining economic growth. This is supported by coefficient of determination also known as the R square of 46.1%. Further, the results imply that the independent variables are good predictors of economic growth. This was supported by an F statistic of 15.550 and the reported p value (0.002) which was less than the conventional 0.05 significance level. Regression of coefficients results showed that stock market capitalization and economic growth are positively and significantly related (r=0.047, p=0.003), stock market liquidity and economic growth are significantly related (r=0.030, p=0.048), stock market index and economic growth are also significantly related (r=0.023, p=0.021). Results further indicates that financial depth and economic growth are significantly related (r=0.052, p=0.007). The study concluded that stock market capitalization, stock market liquidity, stock market index and financial depth influences economic growth. This study recommends that stock market development factors should be encouraged to investors from the aspect of being correlated and having causality to the economic growth.
Keywords: Gross Domestic Product (GDP), Economic Growth, Stock Market.
Title: Relationship between Stock Market Development and Economic Growth in Kenya: A Case of Firms Listed in Nairobi Securities Exchange
Author: Priscilla Waithera Kanyatta, Dr. Asumpta Kagiri
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
Research Publish Journals
