The effect of corporate restructuring on share prices of companies quoted in the Nairobi Securities Exchange

Abstract

Restructuring enhances the prospects for improved performance for firms (Hoskisson & Turk, 1990) via strategic reorientation, organizational configuration and governance structure adjustment. Bowman, Singh, Useem and Badhury (1999) comparative studies showed contradictory results whereby there was positive change in performance for firms that adopted portfolio and financial restructuring and negative results for those that adopted organization restructuring. Local studies on restructuring are not also an exception. None of the studies focused on the impact of corporate restructuring on share prices of companies quoted in the NSE. Therefore, this study sought to find out the relationship between corporate restructuring and share prices of companies quoted in the Nairobi Securities Exchange. The study sought answers to the following research question: What is the relationship between corporate restructuring and share prices of companies quoted in the Nairobi Securities Exchange? The study hypothesis was that there is no significant relationship between corporate restructuring and share prices of companies quoted in the Nairobi Securities Exchange. This study adopted a descriptive survey research design. The target population was all the companies quoted in the NSE as at 31 st December 2013. Stratified proportionate random sampling technique was used to select a sample of 10 companies quoted in the NSE. Secondary data was obtained from the NSE published annual reports spanning five years (2009-2013) for the sampled 10 firms. The primary data was collected using a questionnaire. The quantitative data was analysed using descriptive statistics while qualitative data was analysed using content analysis, through developing a thematic framework from the key issues, concepts and themes. Regression analysis was used to test the relationship between corporate restructuring and share prices of companies quoted in NSE in Kenya. In light of the findings, portfolio restructuring as a corporate restructuring practice positively affected the share prices of the companies listed in the NSE. Given the steady increase in the financial restructuring of the listed firms over the 5 year period and the corresponding increase in the listed firms‟ share prices over the same period, the study concludes that financial restructuring as a corporate restructuring practice positively affected the share prices of the companies listed in the NSE. The organizational restructuring of the listed firms steadily increased over the 5 year period therefore, organizational restructuring as a corporate restructuring practice affected the share prices of the companies listed in the NSE. The study recommends that the management of the listed firms should strive to achieve portfolio balance for their firms in order to enhance their firms‟ value hence leading to an increase in their firms‟ share prices. The management of the listed firms should strive to achieve an effective capital structure for their firms in order to enhance their firms‟ value hence leading to an increase in their firms‟ share prices. The management of the listed firms should avoid disruptive and non-value adding organizational restructuring in order to enhance their firm‟s financial performance hence leading to an increase in their firms‟ share prices.