Effect of Corporate Governance, Investment Strategy and Macroeconomic Factors on Financial Performance of Pension Schemes in Kenya

Abstract

Pension schemes form a significant part of the global investment portfolio. In Kenya, they hold over 13% of the country’s GDP (OECD, 2018). Their importance is underscored by the fact that they contribute significantly to growth and development of world economies (Kakwani, Davis, 2005; Heijdra, Ligthart & Jency, 2006). Their financial performance is critical to the provision of retirement benefits. Khan, Nouman & Imran (2015) observed that the financial performance indicates measures to which economic goals of an organisation has been accomplished over particular time period. Pension schemes however, face numerous challenges that can render the generation of retirement benefits inadequate. A number of studies have been undertaken to evaluate the impact of factors that influence performance of pension funds resulting in mixed and sometimes inconclusive findings. This study sought to assess the effect of corporate governance, investment strategy, interest rate, inflation rate, exchange rate and GDP growth rate on performance of pension funds in Kenya. The study was done using annual data on pension funds and economic indicators spanning the period 1997 to 2018. In addition, it used questionnaires to gather data on corporate governance and investment strategy indices. Quantitative and correlational research design using Linear regression model was used to assess the effect of corporate governance, investment strategy, interest rate, inflation rates, GDP growth rates and exchange rate on pension performance. The study findings show that these factors had significant impact on pension funding. They however, varied on their individual contribution to the prediction of funding level of each pension fund. The study concludes that pension fund management and policy makers should take into consideration the effects of macroeconomic factors, corporate governance and investment strategy in decision making on investment plans to ensure generation of adequate funds to fulfill their key objective of providing retirement benefits to the members.