COVID-19 Fiscal Policy Measures, Information Technology and Stock Market Performance of Listed Commercial Banks in Kenya.

Abstract

The outbreak of the COVID-19 pandemic resulted in significant economic disruptions globally, with stock markets ranking among the sectors most adversely impacted. Even robust financial systems in highly developed economies witnessed substantial declines. In response, many governments adopted fiscal policies inspired by Keynesian economics to cushion the economic fallout. Within this context, the current study aimed to examine the effect of pandemic-related fiscal interventions on the stock performance of selected firms listed on the Nairobi Securities Exchange (NSE). The research particularly focused on analyzing the influence of tax-based measures introduced during the crisis on the stock market performance of commercial banks in Kenya. Additionally, it explored how the application of information technology might have influenced these effects. The study was guided by four specific objectives: to determine the impact of changes in Pay As You Earn (PAYE) tax on the stock performance of listed commercial banks; to assess how Value Added Tax (VAT) policies during the pandemic influenced market outcomes; to evaluate the effects of corporate income tax on stock performance; and to investigate the role of tax refunds in shaping financial results. The theoretical framework was grounded in the Ability-to-Pay Theory, which emphasizes fairness in taxation, and the Efficient Market Hypothesis, which relates to the responsiveness of markets to available information. A descriptive research design was employed to guide the study. The target population consisted of 181 individuals working in 12 commercial banks listed on the NSE, including finance professionals and senior management staff. Through stratified random sampling, a final sample of 178 respondents was selected. Primary data were collected using structured questionnaires, while secondary data were sourced using a document review tool that analyzed financial statements and NSE records from March 25 to December 31, 2020. Data analysis involved both descriptive statistics (means, standard deviations) and inferential methods, including correlation analysis and regression modeling (both simple and multiple regressions). To ensure the reliability and validity of the research instruments, a pilot study was conducted with staff from unlisted banks. Reliability was assessed using Cronbach’s alpha, while face validity was used to ensure relevance and clarity of the questions. The results indicated a statistically significant negative correlation between PAYE adjustments and stock performance (r = -0.496**, p < 0.01), suggesting that higher PAYE may have had a suppressive effect on bank stocks. In contrast, VAT had a positive and significant influence on performance (t = 7.501, p < 0.05), implying that it may have helped maintain investor confidence or financial stability. Tax refunds were also found to have a mild but positive effect on stock performance. However, corporate income tax had a significantly adverse impact on the financial performance of the banks studied. In conclusion, the research found that while certain fiscal measures, such as VAT policies and tax refunds, may have offered some financial relief, increases in corporate tax were counterproductive to economic recovery efforts. It was therefore recommended that policymakers adopt a more comprehensive approach to economic stimulus—one that includes measures such as lowering production and energy costs, rather than focusing solely on adjusting corporate taxation.