Effect of Privatization on Profitability of Commercial State Companies in Kenya

Abstract

The study sought to establish the impact of privatization on state owned companies’ profitability in Kenya. The study used descriptive design to collect and analysis data collected from a target population of sixteen privatized firms listed at the NSE. The study was a census of all the 16 firms with data getting collected for a period of 10 years, 5 pre- privatization years and 5 post-privatization years. The study tested the presence of multicollinearity, heteroscedasticity and normality. Completeness of data was checked being entered into excel sheet. The excel data sheet was exported to STATA software that was used in analysis. Descriptive statistics were first generated before inferential analysis. Minimum, maximum, mean and standards deviation were generated. The study adopted pooled cross- sectional regression in estimating the coefficients of the explanatory variables. The regression assisted in establishing the effect of privatization, state ownership, firm size, and domestic competition on profitability of privatized state firms. The coefficient of determination of showed that majority of the total variation in profitability was explained by privatization, state ownership, firm size and domestic. Further, the p-value associated with the F-statistic showed that privatization, state ownership, firm size and domestic competition had a significant impact on state owned commercial firms’ profitability. The study also established that the effect of privatization, firms size and market competiveness had a significant direct effect on profitability. The effect of state ownership was significant but inverse. Overall, the F-test had showed that privatization, state ownership, firm size and domestic competition majorly effected profitability of the commercial state-owned companies. The government of Kenya should continue adopting privatization programs through the privatization commission by giving up majority of their stake to the private sector. The top management of commercial state firms to should increase their assets holdings and improve their domestic competition.