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| Interest Rates and its Impact on Stock Prices among Small Scale Enterprises: An Empirical Evidence of Kampala District
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Irumba Alex, Ntirandekura Moses
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Abstract:
Interest rate changes influence the stock market performance of companies through valuation and investment channels. However, empirical evidence of this relationship on small businesses remains limited in Uganda. This study investigated the impact of interest rate fluctuations on stock prices of small enterprises listed on the Uganda Securities Exchange using time series data from 2007 to 2021. Multiple regression analysis was conducted on SPSS and STATA while controlling for inflation, GDP growth and exchange rate variations. The findings revealed that a rise in interest rates significantly decreased stock prices as firms faced higher financing costs. Additionally, inflation negatively affected stock prices whereas GDP growth and exchange rate depreciation had positive influences. This unstandardized coefficient accounted for the variability in stock prices not explained by other variables in the model. Furthermore, the standardized coefficient (Beta) for interest rates was 0.688, indicating a strong positive relationship between interest rates and stock prices. This standardized coefficient allowed for a comparison of the relative importance of different predictor variables in influencing the dependent variable, stock prices, while considering their respective scales. The conclusions drawn were that prudent monetary policy tailored to support small enterprises could optimize their utilization of the capital markets for growth. In order to most effectively support small and medium enterprises to pragmatically leverage existing capital market channels as strategic tools optimizing necessary asset financing, several policy recommendations can be delineated.
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