Analysis of the Determinants of Variation in Performance of Privatized Firms Listed in the Nairobi Stock Market.

Abstract

In Kenya attempts to enhance the performance of parastatals have favoured partial privatization. Most of the privatized companies have had a complete turnaround in terms of their performance or example Kenya Airways, while others continue with the depressing record even after privatization for example Telkom Kenya. This study sought to answer the fundamental question of whether privatization achieves the objectives of improving the performance of all the privatized firms as envisaged by the policy makers. It was also aimed at finding out the causes of the variation in performance in the privatized firms. The factors identified that were studied include percentage of residual government shares after privatization, board composition, size of the company in terms of total shareholders' equity, and operating efficiency of the firm. The measure of performance was Return on Equity-(ROE), while operating efficiency was measured by sales to fixed assets ratio, which indicates the extent to which long-term assets are being used to produce sales. All the 15 listed companies with government shareholding were studied and they formed the basis of the findings. In this study secondary data collection methods from government records, published financial statements especially from the capital markets authority, periodicals, journals and textbooks were used. The data collected was analyzed using qualitative and quantitative techniques depending on the nature of the data. The SPSS program was used in entering, managing and cleaning the data. Finally the analyzed data was presented in the form of statistical output tables generated by the statistical tools such as regression analysis. The findings indicated a positive relationship between ROE and operating efficiency and size and a negative relationship between ROE and residual government shares. Board composition was not a significant determinant of ROE.