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.
Publisher
University of Nairobi
Description
Thesis