An Analysis Of The Relationship Between Systematic Risk And Shareholders' Return: A Case Of Companies Listed On Nairobi Securities Exchange

ABSTRACT

This study sought to analyse the relationship between systematic risk and shareholders' return with specific reference to companies listed on the NSE. The study focused on the following questions: what is the firms' specific systematic risk levels and their effect on shareholders' bonuses among the companies listed on the NSE??; what is the relationship between stock category (i.e. agriculture, manufacturing, insurance, banking, commercial services, investment, energy & petroleum sector) and systematic risk among the companies listed on the NSE?; and what is the firms' specific systematic risk levels and their effect on shareholders' dividends. This study focused on two major theories: Capital Asset Pricing Model (CAPM); and Modem Portfolio Theory. The study used secondary data from the published audit reports of the companies listed on NSE. The sample size was pegged on the NSE 20 share index which is a selection of 20 stocks that represent all categories in the market. Findings revealed that systematic risk and stock returns are statistically positive and have significant relationship. Further findings showed that companies that had the highest returns to shareholders posted higher risks compared to the companies which did not pay dividends and bonuses and thus had lower risk and low returns to shareholders. The study recommends investors to look at the risk portfolio as a whole based on the variance of the returns. As per the study findings, there is a need to differentiate between systemic and unsystematic to ensure that when considering the components to consider for compensation companies do not have variables that do not apply and or cannot be measured thereby halting the process. This study is significant as it adds substantial knowledge to the existing framework of the concept of systematic risk and return. Academicians can also use the findings of this study as a basis of reference for any future study.