Effects of Price Regulation on the Financial Performance of Petroleum Sector Firms in Kenya: a Case Study of Total Kenya Ltd.

Abstract

Price controls in the petroleum sector have been a subject of ongoing debate due to their potential effect on the financial performance of companies operating within this industry. This study addresses the problem posed by price controls by examining their impact on the financial performance of prominent selected players in the Kenyan petroleum sector. The primary objective was to assess how price controls influence Return on Assets (ROA), and to provide insights into the broader implications for regulatory frameworks within the sector. The study used a comprehensive panel dataset spanning from 2001 to 2020, categorizing data into two distinct periods: pre-regulation (2001-2010) and post-regulation (2011-2020). Monthly data for various study variables was collected and subjected to inferential statistical analysis, including correlation and regression analyses. The findings of the study revealed significant insights into the relationship between price controls and financial performance. The study indicated a marked decrease in ROA following the implementation of price controls, highlighting the detrimental impact of regulatory interventions on the firms’ profitability. Regression coefficients underscored the importance of liquidity, company size, and board independence in shaping financial outcomes, with liquidity levels positively influencing ROA. In light of these findings, the study recommended that policymakers should strike a balance between consumer protection and industry sustainability when designing and implementing price control mechanisms in the petroleum sector. This balance could consider periodic reviews and adjustments to regulatory frameworks. Conversely, oil marketing companies should prioritize prudent liquidity management and strategic growth initiatives to navigate the challenges posed by price controls effectively. The study provided a nuanced perspective on the complexities of price controls and their implications for financial performance in the petroleum sector, offering valuable guidance for policymakers and industry stakeholders.