Effect of Privatization on the Financial Performance of Listed Companies at the Nairobi Securities Exchange

Abstract

Privatization has been a key component of structural reform programs for both developing and developed economies. This study looked at the effect of privatization on the financial performance of listed companies at the Nairobi Securities Exchange. The objective of the study was to determine the effect of privatization on the financial performance of companies at the Nairobi Securities Exchange. The study summarized the financial performance of 14 privatized companies listed at the Nairobi Securities Exchange. Secondary data was used. The study employed Descriptive statistic; regression analysis to analyse data. The indicators examined were profitability, operating efficiency, output, capital investment, employment, leverage and payout. Since the sample size was small student T- Test was used to test for significance of the difference between pre- and post- privatization performance indicators. The study measured the changes in the performance indicators by comparing its average value for five years before and after privatization. Privatization increased profitability, shareholders’ rates, operating efficiency and capital investment and reduced leverage as expected. Surprisingly, privatization led to an increase in employment. The coefficient of determination r2 showed that 80.31% of the variations in the financial performance were explained by the independent variables. The study therefore, concluded that privatization had a positive effect on the financial performance of companies listed at the NSE.