Abstract:
The study examined the factors influencing the growth and development of capital markets in an emerging
economy. The study focused on the factors that influence the growth and development of the Nairobi Securities
Exchange in Kenya (N.S.E.). This study sought to survey the factors that impinge on the growth and
development of the stock market. The Nairobi Securities Exchange has experienced lack luster performance over
its entire existence since it was founded in 1954. Over the years the number of stocks traded has stagnated at
around 53 quoted companies. Ordinarily one would expect to find a significant degree of correlation between
economic growth and the growth of the stock exchange. The former has averaged 3.8% p.a. in the period 1985-
1996 while the latter averaged only 0.6% as measured by the number of quoted companies.
To achieve the study objectives both primary and secondary data was used. Primary data was generated through
the administration of questionnaires to the stakeholders of the NSE. Key informants were drawn from managers
of investment banks; staff of the NSE, capital markets Authorities, Ministry of finance, Economic planning and
the Central Bureau of statistics. The target population were all the 53 firms listed at N.S.E. Stratified random
sampling based on the segmentation of the trading counters was used for sampling the population of the study.
A sample of 30 firms was selected. Data was summarized using the inferential statistical methods. Descriptive
research design was adopted and used for the study.
The findings of the study indicated that the government policy reforms were viewed as having major influence
on the growth and development of capital markets in Kenya. The NSE has experienced growth over the previous
years, however the rate of growth has been dismal. The key factors that influence the growth and development of
NSE include the strong regulatory and legal framework, good macroeconomic environment, investor education
and awareness, improved market infrastructure, and increased participation by foreign investors.
Keywords: Capital Markets, Nairobi Securities Exchange
