The Impact of Privatization on the Financial Performance of State Owned Companies in Kenya.

Abstract

The main objective of this study was to investigate the effect of privatization on the performance of privatized companies in Kenya. Due to data limitations in the period prior to privatization, two companies namely, Kenya Electricity Generating Company Limited (KenGen) and Kenya Reinsurance Corporation (Kenya Re) were selected as case studies. Two methodologies namely, equality tests and regression analysis were adopted in data analysis. The data collected was for five years before privatization and five years after privatization. The data collected was leverage, liquidity, efficiency, return on assets and company size (proxied by logarithm of assets). The five variables were subjected to paired t-test and Wilcoxon sign rank test in order to establish whether there were any significant differences between these variables in the pre- and post-privatization period. In addition, a pooled regression model with return on assets as the dependent variable and dummy for privatization as the dependent variable was estimated. The control variables in this model comprised leverage, size, liquidity, and efficiency. The equality tests indicated that the size of KenGen had significantly increased after privatization while the efficiency had significantly reduced after privatization. However, leverage and liquidity did not have significant changes after privatization. On the other hand, the equality tests indicated that the return on assets, efficiency and size of Kenya Re had significantly increased after privatization. The regression results indicated that privatization was positively related with the performance of the two companies, with the coefficient of this variable suggesting that privatization had increased the return on assets and hence financial performance by approximately 0.02%.