Gradual vis a vis rapid privatization and financial performance of privatized companies quoted in the Nairobi Stock Exchange in Kenya
Abstract
Privatization in general refers to the transfer of the provision of services or assets from
the public to the private sector. Privatization can be partial (divestiture) or complete
where 100% of government ownership is sold out to the public. Privatization of
parastatals is one the major elements in the economic reform program being undertaken
by African governments. The main objectives of privatization is raising revenues and
reducing the financial and administrative burdens that these enterprises impose on the
government. Other privatization objectives are to foster economic flexibility and improve
access to foreign markets for domestic products and to promote foreign investments.
Privatization is a world-wide phenomenon and there has been a rush to privatize SOEs as
the vehicle for development. Kenya has not been left behind in privatization of SOEs.
The key issue in privatization is how to implement it. In privatization, some governments
choose to fully or rapidly privatize while others implement privatization gradually or
carrying it out in piece-meal
This study therefore sought to assess the rate of transfer of ownership of privatized public
enterprises and to assess the relationship between the rate of transfer of ownership and
the financial performance of privatized companies in Kenya.
This study shows that for companies that followed the rapid privatization, there was a
significant increase in all the financial ratios thus improved financial performance. In the
case of gradual privatization, there has been mixed results in that they have recorded very
low financial ratios after the second divestiture. The study reveals that gradually
privatized firms are performing relatively poorly as compared to rapidly privatized. This
study reveals a number of potential challenges which include the fact that few companies
have been privatized in Kenya through the stock exchange thus the results may not be
conclusive. In addition, there was lack of sufficient documented data from the Nairobi
Stock Exchange and Capital Markets Authority regarding the pcrccntage of shares the
government divested over the years especially in the case of gradual privatization.
Another challenge is the frequent change of CEOs in the privatized firms as some firms
may have poor performance due to the strategy adopted by the new management.
From the findings of the study, it is recommended there is need to ensure that whenever
firms are privatized, the government should use the rapid privatization approach since
this leads to better performance.
It is suggested that further research be carried out on specific sectors of the economy like
the banking sector that have been identified and are yet to be privatized. One would
research on the implication of unsecured loans in privatized banks whether they were
privatized rapidly or gradually.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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