Effects Of Government Bailout On Financial Performance Of Commercial State Owned Enterprises In Kenya

Abstract

Government bailout is where a government provides financial support to the State Owned Enterprises, state corporations or county Governments when facing financial difficulties or bankruptcy. It is believed that when Government bail-out the state owned Enterprises it is investing and perhaps expects to realize returns in the future on behalf of the taxpayers. Government bail-out should in an ideal situation help improve the financial performance of the State Owned Enterprises however that has not been evident as the State Owned Enterprises bailed out continue performing dismally and would request for continuous bail-out. The objective of the study was to determine the possible effect of the Government bail-out on financial performance of State Owned Enterprises. The population for this study comprised of commercial state owned Enterprises that have been bailed out by the Government in Kenya. The model had a Correlation value of 0.953 which depicts good linear relationship between predicted and explanatory variables. The model was also strong with an R-square value of 0.908 which was adjusted for errors to 0.723. This depicts that the independent variables explains 72.3% of the changes in financial performance as measured by the variables. An analysis of the financial performance ratios indicates that profitability ratio did not immediately increase in post government bailout era, meaning that government bailout should be seen as a long term intervention strategy. This applied to all the State Owned Enterprises studied. The study recommended the need to look at the valuation of enterprises that are up for government bailout.