Sky Journal of Business Administration and Management Vol. 3(7), pp. 085-093, December, 2015. Available online, http://www.skyjournals.org/SJBAM
ISSN 2315-8778 ©2015 Sky Journals

 

Full Length Research Paper

Comparative analysis of financial performance of selected privatized firms listed in Nairobi stock exchange

 

Fredrick M. Mbuga1* and Timothy C. Okech2

 

1Jomo Kenyatta University of Agriculture and Technology (JKUAT), Kenya.
2United States International University Africa, Mirema, Nairobi City, Kenya.
 
 

*Corresponding author. E-mail: fredrickmbuga@yahoo.com 

 

Accepted 7 November, 2015

 

 

Abstract

 

Since early 1990s, many state owned enterprises (SOEs) were earmarked for privatization and consequently privatized using different privatization methods. Many of these have thus been listed and the shares traded on the Nairobi Securities Exchange. The purpose of this study was to find out whether the method employed in divesting these SOEs have had an impact on the post divestiture financial performance of the enterprises in terms of profit, liquidity, solvency and productivity using expost facto survey design. The target population was all the companies privatized by public floatation, competitive bidding and finally, pre-emptive rights listed in Nairobi stock exchange by 2005. A sample of a few companies, were selected using stratified sampling from which proportion allocation procedure was applied. Thereafter, secondary data was collected from records in Nairobi Stock Exchange regarding these companies. Data collected was first cleaned, coded for completeness before being analyzed in terms of mean ratios on financial performance five years prior and post privatization period for the selected firms; tables and line graphs; paired t-test were also analyzed. The study revealed that firms privatized by competitive sale showed significant improvement on profit, liquidity, solvency and productivity as opposed to those privatized through public floatation and pre-emptive rights. Other findings were firms privatized by public floating recorded significant improvement on profitability and productivity followed by liquidity and solvency. Notwithstanding this, the study also showed that firms privatized by pre-emptive rights reported insignificance in all the parameters of financial performance. It is thus recommended that sale of public enterprises by competitive bidding has positive implication on the financial performance in terms of profitability, liquidity, solvency, productivity and therefore should be considered. Similarly, sale by public floatation especially where the government retains majority shareholding should be discouraged and instead, a strategic partner should be identified to turn around the organizations. Lastly, it is recommended that under pre-emptive rights, minority shares should be left to the insiders so the outsiders can bring the synergy required to turn around the organization.

Key words: Public share flotation, pre-emptive rights and competitive bidding, financial performance.

 

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