Risk and financial performance of investment banks in Kenya

Abstract

This paper addresses the ascendancy of operational risk on performance of investment banks in Kenya.The study adopts a mixed methods research design. The population of the study was drawn from 16investment banks operating in Kenya. Secondary data for the study was collected from the annualfinancial statements of the investment banks for the years 2011 to 2019. Primary data was utilized from27 interviewees composed of managers of the investment banks. Both descriptive and inferentialanalysis methods were employed in the analysis. The regression results indicate that operational risksby investment banks in Kenya have a negative and significant effect on financial performance ofinvestment banks in Kenya. Being a less capital intensive entity, the investment banks in Kenya do nothave many operations to be managed. However, there are increases in fixed costs such as office space,employee benefits and legal fees. These costs cannot be managed without jeopardizing the businessoperations and causing more undesirable effects. As such, the only way to manage them is to offset theoperational cost by improving the business returns. However, the improvement of returns depends onother business factors. Therefore, the growth in operational costs coupled with decline in profitsexplains the negative and significant relationship between operational risk and financial performanceof investment banks in Kenya.