The Impact of Demutualization on Financial Performance of a Stock Exchange a Case of Nairobi Securities Exchange

Abstract

Since its inception in 1954, Nairobi Securities Exchange operated as a mutually owned organization. This resulted in numerous challenges including limited ability to fund its operations, financial unviability, poor management and regressive rules and regulations that did discouraged listing among companies. The challenges affected the ability of NSE to efficiently and effectively carry out its activities. This informed the decision to demutualize NSE that ended with self-listing of NSE in 2014. The objective of the study was to determine the impact of demutualization on financial performance Nairobi Securities Exchange. The study adopted an event window methodology. Secondary data was collected on share prices, NSE-20 share index and market capitalization. The study analyzed the collected data using SPSS. The study found out that that pre-demutualization had significant impact on financial performance of NSE. Post-demutualization had significant impact on financial performance of NSE. Market capitalization had significant impact on financial performance of NSE. The study concludes that demutualization had a significant impact on financial performance of NSE. The study recommends that the management team of NSE should seek to increase the value of market capitalization in order to improve on financial performance. The senior management team of NSE should establish sound policies and regulations that would increase the share prices and therefore financial performance of the company