The effect of government ownership on share price volatility of companies quoted at Nairobi stock exchange

Abstract

The study contained in this report investigated the effect of ownership on share price volatility of companies quoted at the Nairobi stock exchange (NSE) for the period 1997 to 1998. The specific objective of the study was to establish whether ownership influences the share price volatility of companies quoted at NSE. Share price volatility is regarded as risk surrogate and hence was used to measure the risk perceived by investors. The population of interest was the eight companies, which the government had shareholding and are quoted at the NSE. Data of share prices and NSE index was collected for the two years and first analyzed by selecting the weekly high, low and closing for each company and the NSE index. Statistical test was carried out using chi-square test for independence to find out whether ownership and share price volatility are independent. From the research findings it was concluded that what has been assumed all along by this study is actually true. That is, companies which the government has shareholding are perceived to be more risky by investors. This conclusion supports the need for privatization of such companies