The effect of privatization on the profitability of commercial state corporations in Kenya
Many state corporations in Kenya have been registering deteriorating performance in terms of profitability mainly attributed to poor management. This is in spite of the massive budgetary allocation to these corporations by the government. This has called for structural reforms in key government parastatals and government institutions. Privatization of commercial State Corporation requires dramatic changes. Managing such a radical change requires the presence of a catalyst having the vision and stamina to bring the transformation needed for greater profitability. The main objective of this study was to determine the effect of privatization on the profitability of commercial state corporations in Kenya. This study adopted an ex-post facto design. Ex-post facto research design is systematic and empirical inquiry in which the independent variables have already occurred and are not manipulated by the researcher. The target population of this study was drawn from 102 privatized commercial state corporations in Kenya as at 31st December 2014 as shown in Appendix I. This study relied on secondary data. Secondary data was obtained from published accounts of the firms. The published accounts provided information on Return on Return on Equity (ROE) and operational costs. Data on percentage of government ownership in privatized commercial state corporations was obtained from the privatization commission of Kenya. Data on market share and state of the economy of privatized commercial state corporations was obtained from the Competition Authority of Kenya. Descriptive statistics was used to describe and make sense of the data. The descriptive statistics included frequencies, percentages and means and standard deviations. Multiple Regression analysis was used to analyze the relationship between privatization and profitability of commercial state corporations in Kenya. The study asserted from the findings that profitability of commercial state corporations in Kenya improved after privatization. This can be explained by, first and foremost privatization reduced the government expenditure due to the withdrawal of direct subsides. Prior to the privatization process, there was a physical drain on the national treasury as the government was heavily subsidizing commercial state corporations to stand on their own, for instance, exempting them from import duties. In this there was increased financial efficiency and high profitability. Secondly, privatization of commercial state corporations led the management to focus on profit goals because now under private ownership, they were directly supervised by shareholders. That is why the change in ownership from public to private resulted in an increase in the profitability of commercial state corporations. The study concluded that there were positive improvements in the performance of commercial state corporations in Kenya in terms of profitability. In general the results concur with empirical literature that states privatization improves the performance of privatized companies in terms of profitability and financial efficiency. While the causes of such satisfying outcome most expect further empirical analysis, there is evidence to suggest that such causes may include but not limited to adequate finance, decrease in production cost and management efficiency. Based on the findings, this study recommended that the government should privatize poorly performing enterprises as it can greatly benefit from privatizing commercially oriented enterprises.