Financial performance of public enterprises and privately owned firms compared

Abstract

It has been generally assumed and concluded that the private sector firms perform better than PEs in similar undertakings. This has not been, however, substantially empirically proved in the Kenyan setting. In theory, profits will be highest when an enterprise- public or private-strives to maximize profits in the competitive market under managers with the autonomy, capacity, and motivation to respond to competition, and when enterprises that cannot compete are liquidated In practice, public enterprise seldom face such conditions. There are several other factors that affect the performance of a firm. Such factors seem to be more favourable ln the private sector than in the public sector and that is why the former outperforms the latter. This study compares the performance of private firms with that of public enterprises using financial ratios as the comparison criterion. Twenty-eight companies were taken from each sector and eight ratios were computed for each of the companies from the two sectors. Mean ratios for each company were computed. Finally, mean ratios for each sector were computed and then compared over an average of eight- year period. From the research findings it was concluded that what has been assumed all along is actually true- that, in financial terms, private sector firms outperform -p-ublic enterprises .in similar undertakings. Even though the public enterprises seemed to be

highly indebted than the private firms, it was not possible to conclude that it is actually the case as the statistical test for any significant difference showed that there is no difference