Browsing by Author "Ocharo, Kennedy Nyabuto."

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Capital adequacy, competition and liquidity creation of banks; evidence from Kenya
(Emerald Publishing., 2024) Kariuki, Peter Wang'ombe.; Kinini, Dennis Muchuki.; Ocharo, Kennedy Nyabuto.
Abstract Purpose The study seeks to evaluate the effect of capital adequacy and competition on the liquidity creation of Kenyan commercial banks. Design/methodology/approach Unbalanced panel data from 36 Kenyan commercial banks with licenses from 2001 to 2020 is used in the study. The generalized method of moments (GMM), a two-step system, is employed in the investigation. To increase the robustness and prevent erroneous findings, serial correlation tests and instrumental validity analyses are used. The methodology developed by Berger and Bouwman (2009) is used to estimate the commercial banks' levels of liquidity creation. Findings The study supports the financial fragility-crowding out hypothesis by finding a significant negative effect of capital adequacy on the liquidity creation of commercial banks. The research also identifies a significant inverse relationship between competition and liquidity creation, depicting competition's value-destroying effect. Practical implications A trade-off exists between capital adequacy and liquidity creation, which must be carefully evaluated as changes in capital requirements are considered. The value destroying effect of competition on liquidity creation presents a case for policy geared toward consolidating banks' operations through possible mergers and acquisitions. Originality/value To the best of the authors' knowledge, this is the first study to empirically offer evidence concurrently on the effect of competition and capital adequacy on the liquidity creation of commercial banks in a developing economy such as Kenya. Additionally, the authors employ a novel measure of competition at the firm level.
Do income diversification and capital adequacy affect liquidity creation? A case study of commercial banks in Kenya
(Taylor & Francis., 2023) Kariuki, Peter Wang'ombe.; Kinini, Dennis Muchuki.; Ocharo, Kennedy Nyabuto.
Abstract The paper investigates how income diversification and capital adequacy affect the liquidity creation of banks in Kenya. We employed unbalanced panel data from 36 commercial banks from 2001 to 2020. We extracted data from published banks’ financial reports and statements. The study used the broad and narrow measures to measure liquidity creation. Owing to the persistent nature of liquidity creation, we used a dynamic panel model and a two-step system Generalized Method of Moments (SYS GMM) in the analysis. The findings suggest a positive linkage exists between income diversification and the liquidity creation of commer- cial banks, implying that well-diversified banks have a high level of liquidity creation and vice versa. However, the study discovered a negative relationship between capital adequacy and liquidity creation, supporting the financial fragility-crowding out hypothesis. Consequently, the study suggests that the diversification drive in banks must be reinforced to enhance their liquidity creation. Additionally, due to the tradeoff between capital adequacy and liquidity creation, an optimal level of capital is required to provide a buffer against shocks without negatively impacting liquidity creation, a crucial channel through which banks contribute to the economy