ANTECEDENTS OF DERIVATIVE INSTRUMENTS ADOPTION BY COMMERCIAL BANKS IN KENYA

Abstract

This study examined the antecedents of derivative instruments by commercial banks in Kenya. The specific objectives of the study were to examine the effect of contract complexity on the adoption of derivatives among commercial in Kenya, and to determine the effect of public awareness framework on the adoption of derivatives among commercial banks in Kenya. The study was anchored on liquidity preference theory, and information signalling theory. The study design was descriptive survey where the study focused on commercial banks in Kenya. The target population were all the 36 commercial banks licensed by Central bank of Kenya. Since the study target population was smaller, a census survey covering all commercial banks that operated as at 2019 was conducted. The study relied on questionnaires extensively used during data collection. The data was analysed through multivariate analysis with the assistance of the statistical Package for Social Sciences package (SPSS). The data was analysed using descriptive and inferential statistics. The study results established that the independent variables explain eighty-three-point two percent of the variation in the adoption of derivative instruments. Further, ANOVA showed that the independent variables combined have a significant effect on adoption of derivative instruments among commercial banks in Kenya as depicted by probably value less than 0.05 level of significance. The study also revealed that the effect of complexity of derivatives contract on adoption of derivative instruments was negative and statistically significant. The effect of public awareness framework on derivatives instruments adoption among commercial banks was positive and statistically significant. The study therefore concluded that complexity of derivative contract, public awareness framework and liquidity had a significant effect on adoption of derivative instruments among commercial banks in Kenya.

Key Words: Antecedents of Derivative Instruments, Contract Complexity, Adoption of Derivatives, Commercial in Kenya, Public Awareness Framework