Financial Ethics And Investor Confidence Among Members Of The Nairobi Securities Exchange, Kenya

ABSTRACT

Ethics has been a momentous consideration in many professions including business,

politics, medicine, law, and almost every other area of our society. In order for

investors to delve into financial markets, there is a need for intermediaries to act in a

fair manner and bound by legal regulations co-ordinated with financial ethics.

Investor confidence, which is speculative in nature has changed in imperative ways

through time and these changes have significant consequences for financial markets.

Ensuring investor confidence enriches investors’ participation in the market activities

and emboldens saving as well as channeling of savings into productive real

investment, therefore nurturing capital accumulation and efficiency in investment

enhancing real sector growth. The drive of this study was to examine financial ethics

and investor confidence among members of the Nairobi Securities Exchange, Kenya.

The theoretical grounding of this thesis was based on the agency, virtue,

consequentialist, deontological and the efficient market hypothesis (EMH) theories.

Research data was obtained using questionnaires that were availed to active investors

(individual and institutional) who invest within the Nairobi Securities Exchange and

the sample population for the study was 385 respondents. The study utilized

purposive sampling in selecting respondents from the NSE. The study adopted both

descriptive statistics and inferential statistics as the main unit of analysis using

multiple regression equations probit model. The data collected was analyzed using the

Statistical Package for Social Science (SPSS) version 20. Descriptive statistics were

presented using mean, standard deviation, frequencies and percentages while

inferential statistics utilized a multiple regression analysis with a moderating variable

at 5% significance. The study findings established a positive and significant

relationship between ethical principles and codes (R = 0.145, Sig = 0.026) and the

level of investor confidence. The findings also presented a significant relationship

between the level of investor confidence and ethical effectiveness (R = 0.373, Sig =

0.025). In relation to ethical corporate culture, the findings again showed a positive

significant relationship (R= 0.435, Sig = 0.013) on the level of investor confidence in

financial markets. The legal enforcement of the capital market regulations was found

to have a significant moderating effect (R = 0.337, Sig = 0.024) on investor

confidence among members of the Nairobi Securities Exchange, Kenya. The study

concluded that additional initiatives should be done to foster investor confidence

within the financial markets in Kenya such as enhancing financial ethics. The study

correspondingly concluded that ethical effectiveness had the highest magnitude of

influence on investor confidence at the NSE. It was therefore recommended that

CMA should ensure all the employees of the member firms should have the required

training and skills for them to contribute to increased investor confidence. Besides,

CMA should ensure efficacy relating to laws and policies that exist to guide the

conduct of members of the NSE.