The Effect of Firm Performance on Impact Investment in Kenya: A Case Study of Jamii Bora Bank

Abstract

The purpose of the study was to examine the effect of firm performance on impact investment in Kenya, focusing on the case of Jamii Bora Bank. The study aimed to answer the following study questions: To what extent does operational efficiency affect impact investing at Jamii Bora Bank? To what extent does expenditure on social programs affect impact investing at Jamii Bora Bank? To what extent do financial returns affect impact investing at Jamii Bora Bank? The study used explanatory study as it attempted to lay the groundwork that will lead to future studies on the subject. The study mainly used secondary data that was collected from financial statements of Jamii Bora bank in the light of the research questions. Time series data was collected for the six-year period from 2010 to 2015. To ensure effective and efficient data analysis, data was analyzed using simple linear regression as well as multiple regression analysis in the statistical package for social sciences (SPSS). This helped to determine whether the independent variables (operational efficiency, expenditure on social programs and financial returns) had any significant effect on impact investing. Findings were presented in tables. Findings indicated that there is a strong positive correlation between operational efficiency and impact investment in Jamii Bora Bank. In other words, an increase in operational efficiency leads to an increase in impact investment. From the findings, operational efficiency explains 77.3% of the variation on impact investment at Jamii Bora Bank. Regarding the effect of expenditure on social programs on impact investing, it was revealed that there is a positive correlation between expenditure on social programs and impact investment in Jamii Bora Bank. Findings indicated that, expenditure on social programs explains 56.4% of the changes in impact investment in the bank. On the effect of financial returns on impact investing, findings indicated a strong positive correlation between financial returns and impact investment. At Jamii Bora Bank, financial returns were found to account for 78% of the changes in impact investment. Jointly, from the multiple linear regression analysis, findings indicated that the correlation between the independent and dependent variables was positive. It was iv revealed that operational efficiency, expenditure on social programs and financial returns jointly explain nearly 76% of the variation in Impact investment at Jamii Bora Bank. Moreover, operational efficiency, expenditure on social programs and financial returns have a significant effect on impact investment. The study concluded that, while expenditure on social programs increases the level of impact investing, the level of the positive impact is not as high as the impact from operational efficiency and financial returns. As such, though investment banks engagement in social programs is likely to encourage more impact investment, care must be taken to ensure that the expenditure on social programs do not affect profitability of the bank greatly. Otherwise, this may reduce the financial returns and operational efficiency which have a relatively higher positive effect on impact investing, which in turn would lower the level of impact investment. Various recommendations were made among them the need for Jamii Bora Bank to have the willingness to move beyond the idea of an ongoing trade-off between financial and social returns as the market increases in sophistication. Recommendation for further study was that a similar study should be conducted on a different investment bank and the results compared to enhance the reliability and generalizability of the conclusions drawn.