Corporate restructuring and firm performance in the banking sector of Kenya

Abstract

Corporate restructuring has become a common phenomenon around the world. Unprecedented number of companies across the world have reorganised their divisions, restructured their assets, streamlined their operations and spun-off their divisions in a bid to spur the company performance. It has enabled numerous organisations to respond quickly and more effectively to new opportunities and unexpected pressures so as to re-establish their competitive advantage. In the recent past difficult operating conditions have motivated companies to restructure by retrenching staff and downsizing their scope of operations. Restructuring is considered to be the type of change which may be rapid and could involve a good deal of upheaval in an organization, but which does not fundamentally change the paradigm. The objective of this study was to establish the implication of restructuring on the performance and long-term competitiveness within the Kenyan banking sector. It also sought to establish the significance of different modes of restructuring adopted by the banks and their role in influencing performance. The study targeted all the 43 Kenyan banks and thus a cross sectional survey design was adopted. The researcher used a semi structured questionnaire as a primary data collection instrument which targeted the top management in the respective banks. Secondary data was collected from the bank’s annual reports and financial statements obtained from the banks supervision department of the Central Bank of Kenya Data .Data collected was both qualitative and qualitative in nature. The qualitative data was content analysed and quantitative data analysed using descriptive statistics. Findings revealed that generally restructuring resulted to improvement in performance in terms of market share growth, competitiveness, growth in quality of products, geographical spread and customer retention. Further findings revealed that banks used different strategies of restructuring which had different motives in influencing performance. In regards to the role of the different modes used in influencing performance the study found mixed and inconclusive results as performance in some cases improved after financial restructuring whereas in other cases it declined. In the case of organisational and portfolio restructuring the study showed an increase in the year of restructuring and the year after though it was at a greater magnitude in the organisation mode of restructuring. The study recommends that choice of the mode of restructuring should be well thought depending on the objective that the firm wants to achieve. Secondly it was recommended that policies and procedures be well set while implementing the strategies considering the inherent internal factors in an organisation in order to achieve a successful implementation and the results.