Risk and financial performance of investment banks in Kenya
Abstract
This paper addresses the ascendancy of operational risk on performance of investment banks in Kenya.
The study adopts a mixed methods research design. The population of the study was drawn from 16
investment banks operating in Kenya. Secondary data for the study was collected from the annual
financial statements of the investment banks for the years 2011 to 2019. Primary data was utilized from
27 interviewees composed of managers of the investment banks. Both descriptive and inferential
analysis methods were employed in the analysis. The regression results indicate that operational risks
by investment banks in Kenya have a negative and significant effect on financial performance of
investment banks in Kenya. Being a less capital intensive entity, the investment banks in Kenya do not
have many operations to be managed. However, there are increases in fixed costs such as office space,
employee benefits and legal fees. These costs cannot be managed without jeopardizing the business
operations and causing more undesirable effects. As such, the only way to manage them is to offset the
operational cost by improving the business returns. However, the improvement of returns depends on
other business factors. Therefore, the growth in operational costs coupled with decline in profits
explains the negative and significant relationship between operational risk and financial performance
of investment banks in Kenya.
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