Effect Of Macroeconomic Factors On Financial Performance Of National Social Security Fund In Kenya

Abstract

Studies have shown that firm’s financial performance is influenced by the business cycle. During boom times, firms and households commit larger proportions of their income flow to debt servicing with preference for leverage following a pro-cyclical pattern. Both the demand for leverage and firms' income will rise and fall with the business cycle assuming ceteris paribus. However, studies have proven this not be true from the mixed results on the relationship between the macroeconomic variables and performance of the firms. There are a number of studies globally that indicate the existence of a relationship between the macroeconomic variable and the firm’s financial performance. The National Social Security Fund (NSSF) is an institutional investor whose profitability depends on how other sectors are performing. The funds for instance made a loss of over Sh. 10 billion in 2016 due to the decline in the performance by listed firms at the Nairobi Security Exchange. The purpose of this study is to investigate the effect of macroeconomic factors on the financial performance of National Social Security Fund in Kenya. The objectives of the study are to determine the effect of foreign exchange rates on the financial performance, establish the effect of the inflation rate on the financial performance, assess the effect of level of interest rates on the financial performance and to establish the effect of the Gross Domestic Product on the financial performance of NSSF. The study adopts a descriptive research design in which the target population is financial publication and the Kenya National Bureau of Statistics library. Secondary data was obtained from the NSSF and Kenya Bureau of Statistics and the Central Bank. Data was analyzed using economic model and using tests as Johansen co integration test, Granger causality test and Vector Auto regressive model with the aid of STATA as the statistical software. A regression model was fitted to the data and the results of the study show that GDP, exchange rates and inflation rates had a positive and significant influence on the NSSF in Kenya. The study also shows that though Interest rates have a positive influence of the financial performance of NSFF in Kenya, its impact is insignificant compared to the rest of the variables in the study. There however exists co integrating relationship between the variables and the study shows that in the long run interest rates and inflation rates have a negative influence on the financial performance of NSSF in Kenya and become statistically insignificant.