Does Technology Adoption Reforms Influence Securities Market Performance? Evidence from Kenya

Abstract

The Kenyan securities market has been undergoing significant transformation, driven by technological advancements and other structural reforms. The adoption of the automated trading system was aimed at improving market efficiency by speeding up transactions and increasing market liquidity. Regulatory efforts by the Capital Markets Authority, including stricter governance systems at the Nairobi Securities Exchange, have enhanced transparency and accountability. However, market performance remains subdued due to global economic conditions, inflation and currency fluctuations. The Exchange is diversifying its product offerings with derivatives and Reits to attract more domestic and foreign investors. Despite these positive efforts, challenges such as limited liquidity in some securities, high concentration in a few blue-chip stocks, and economic instability persist. This paper aimed to investigate the influence of technology adoption reforms on Kenya's securities market performance. The paper employed an exploratory research design, collecting primary data from 154 firms and 238 respondents from 333 managers participating in the Kenyan securities market. The study conducted data analysis using SPSS AMOS, employing principal component analysis and confirmatory factor analysis to evaluate the relationships between latent variables.  The findings indicate that the measurement items' regression weights had t-calculated values exceeding the critical threshold of 1.96 and were statistically significant (p < 0.05). This suggests that technological reforms are associated with a cumulative increase in the number of shares traded, particularly following the introduction of mobile-share trading. Furthermore, there was a significant link between technology adoption reforms and the reduction of transaction costs, attributed to the elimination of paperwork and procedural inefficiencies. The paper concludes that there exists a significant positive influence of technological reforms on securities market performance in Kenya, highlighting the critical role these reforms play in enhancing market efficiency by reducing transaction costs. The practical implication of these findings is that the market regulator can leverage emerging technologies and popularize their adoption to enhance market remote market supervision, improve trading transparency, and boost investor confidence through real-time monitoring and access to accurate data. These reforms support financial inclusion by expanding online trading, simplifying regulatory compliance through automated reporting, and encouraging innovation with advanced products like derivatives. This will also align Kenya's securities market with global standards, increasing competitiveness and attracting foreign investment. Nevertheless, the CMA must address cybersecurity risks to ensure the market remains secure and resilient in the evolving digital landscape.