| dc.description.abstract | The real estate investments outperform most asset classes for over a decade and thus
attracting many investors. It is one of the sectors contributing greatly to the gross
domestic product of many nations. However, risks such as market risk, liquidity risk,
leverage risk and interest rate risk may largely affect the performance of real estate
firms. These risks affect the real estate investments globally, but Kenya experiences
high uncertainty of returns due to market volatility and economic fluctuations. This
study aimed to assess the influence of Investment risk hedging on the performance of
real estate firms in Meru County. The objectives were to examine the influence of
Market risk, interest rate risk, leverage risk and liquidity risk hedging on the
performance of the real estate firms. The study adopted three theories, that is;
Modern Portfolio Theory, the Market Interest Rates Theory and the Classical Theory
of Interest Rates. The descriptive survey design was utilized to collect data using
questionnaires. The sample size of 131 officers was arrived at using Krejcie and
Morgan. Stratified random sampling method was used to select number of
participants in each stratum identified by Krejcie and Morgan formula. The senior
managers, financial officers, operations officers, risk officers and sales officers were
the units of observation who gave the information required. To test the instruments’
reliability and validity 14 questionnaires were pretested at 3 real estate firms in
Tharaka Nithi County using random sampling method to select the participants. SPSS
version 23 and Excel were used to examine the data. This study made use of
descriptive statistics including frequencies and percentages tables and figures to
present the study findings. In addition, inferential statistics such as Regression, and
ANOVA were used to present the results. The results indicated that market risk had a
significant influence on revenues growth but low influence on ROE, ROA and NOI.
Most firms failed to apply financial innovations such as currency swaps and futures
to hedge against risk. Interest rate risk hedging had a statistically significant
influence on ROE. Hedging strategies such as swaps were very uncommon. Liquidity
risk hedging had the highest positive influence NOI and ROE and less influence on
ROA. Leverage risk hedging had a significant high positive influence on ROA and
revenue growth but and very low influence on ROE. The researcher developed a risk
hedging appraisal tool and proposed special, homemade derivatives (Straw belly
swaps, and Vanilla futures) for hedging financial risks in real estate in Merucounty,
Kenya and developing countries. The study recommended training of real estate
firms about financial innovations such as currency swaps and futures to hedge
against risk. Maintenance of a well-balanced capital structure as well as
diversification was also recommended. A further study on the effectiveness of
hedging strategies such as straw belly swaps, and Vanilla futures,on real estate
firm’s performance was recommended. It contributed to the existing body of
knowledge, the theory and in the practice of Investment risk hedging | en_US |
