Credit Risk Hedging and It’s Effect on Share Price Volatility of NSE-Listed Firms in Kenya

The Kenyan government has registered a steady economic development. The share prices of the firms listed on the Nairobi Securities Exchange (NSE) have, however, continued to fluctuate. The inevitable phenomena of share price volatility are a reflection of investor expectations, market knowledge, and financial facts. The proper functioning of the financial system is disrupted by share price volatility. High volatility above a certain threshold increases the financial risk. Various scholars have explored the relationship between hedging and the volatility of share prices. The study investigated credit risk hedging and its effect on the share price volatility of NSE-listed firms in Kenya. Liquidity preference theory was the fundamental theory on which the study was anchored. A mixed research design and positivism research philosophy was used for the investigation. The study focused on the 54 NSE-listed firms between 2013 and 2022. This study had 54 NSE-listed firms comprising a director, a manager, and one head of department as the population of the study. The study adopted purposive sampling, and the population was divided into ten strata. Secondary data was collected for the dependent and independent variables, whereas primary data was collected for the intermediate variable. Questionnaires and data collection sheets were used to collect primary data and secondary data, respectively. Diagnostic tests are run to establish the model. Results were presented using graphs, tables, and figures. The findings indicate a p-value of 0.128, and the coefficient of credit risk hedging is -0.3386364. The study accepted the alternative hypothesis and concluded that credit risk hedging statistically affects the share price volatility of listed firms in Kenya. The findings show that moderated credit risk hedging has a negative effect on the share price volatility of Kenyan listed companies. The results imply that a unit increase in credit risk hedging results in a decrease in the share price volatility of Kenyan firms listed on the NSE. The mean score of Capital Markets Authority (CMA), the moderating variable, is 3.95, indicating that CMA regulations have a moderating effect on the relationship between credit risk hedging and share price volatility of NSE-listed Firms in Kenya. The study recommends firms to minimize the leverage ratio. The standard deviation of share prices should also be kept at a certain level since the wider the spread, the more volatile the share prices will be, and the more dispersed the price bars will be. Future studies focus on other financial and non-financial risks and on alternative methods of ascertaining the effect of credit risk management to explore whether a different approach may lead to a different conclusion.