EFFECT OF INVESTMENT DIVERSIFICATION ON THE FINANCIAL PERFORMANCE OF RETIREMENT BENEFITS SCHEMES IN KENYA

Abstract

Prudence investment advocates considering investment diversification so as to mitigate inherent investment risks. This is in the premise that diversified investments can lead into reversing adverse financial performances in entities. The general objective of this study was to investigate the effect of investment diversification on the financial performance of retirement benefits schemes in Kenya. The specific objectives employed in this study comprised of an investigation on the effect of investment diversification in equities, bonds, real estates as well as short-term government securities on the financial performance of the retirement benefits schemes in Kenya. The study further examined the moderating effect of the foreign exchange rate on the relationship between the independent and the dependent variables. The modern portfolio, the liquidity preference, the transaction cost as well as the purchasing power parity theories were used in supporting this study. The study adopted the descriptive research design. The population employed in this study comprised of 87 retirement benefits schemes in Kenya. The stratified random sampling technique used in this study resulted into having 72 units of analysis. Primary as well as secondary quantitative data were employed in this study, and the data was collected through questionnaires and data collection schedules. Data analysis was through the statistical package for social sciences version 20. Pilot study was carried out so as to ascertain the validity and reliability of the research instruments. Test for normality, test for heteroscedasticity, test for linearity, test for outliers, test for autocorrelation, test for multicollinearity, the F-test as well as the R Square tests were conducted on the data prior to running the multiple linear regression model. Descriptive statistics as well as the Pearson’s correlation coefficients were generated before running the regression model. The P-value from the regression coefficients were employed in testing the hypothesis and decision made on whether to reject or fail to reject the null hypothesis at 0.05 level of significance. The hypothesis testing for the direct relationship model led to the rejection of H01, H02, H03 and H04. This meant that investment diversification in equities, bonds, short-term government securities as well as investment diversification in real estate have a significant positive effect on the financial performance of the retirement benefits schemes in Kenya. The hypothesis testing for the moderated relationship model led to the rejection of H05. The rejection of H05 meant that foreign exchange rate has a significant inverse moderating effect on the relationship between investment diversification and the financial performance of the retirement benefits schemes in Kenya. The researcher therefore recommends that the retirement benefits schemes should consider diversifying their investments because it affects their financial performance. The researcher also recommends that the schemes should be vigilant on the volatility of the foreign exchange rate because it has a significant inverse effect on the relationship between investment diversification and the financial performance of the retirement benefits schemes in Kenya.