Abstract
This study investigated the influence of ownership structure on financial performance of privatized companies in Kenya for the period of 2007 to 2013. The study was informed by the property rights, the agency and the resource based theories. Data was extracted from prospectuses and financial reports of privatized companies, obtained from the Capital Markets Authority (CMA) and the Nairobi Stock Exchange (NSE). A unit root test was used to examine stationarity of data while a Hausman test determined the appropriate regression model. This study used a Fixed Effects (FE) regression model with a robust standard error option to control for heteroskedasticity and contemporaneous correlation which may lead to spurious results. The study found that ownership structure has a significant relationship with financial performance. Among individual variables, government ownership has a positive influence on Return on Assets (ROA) and the Tobin’s Q; but a negative effect on cost efficiency. Institutional shareholders have a positive influence on ROA and technical efficiency. Large individual investors have a positive influence on cost efficiency. Dispersed shareholders have a positive influence on ROA but a negative effect on cost efficiency. This study recommends that the Privatization Commission of Kenya should restructure ownership of privatized companies to reduce government and dispersed ownership further to pass more control and decision making to private investors. However, the government should retain some ownership in privatized firms to enhance shareholders confidence, protection of investments and managerial monitoring. A strategic institutional investor in each company should be identified and be allocated adequate ownership to enable privatized companies attract managerial and technical expertise crucial to improve governance and financial performance. Key words: Privatization, SOEs, ownership structure, financial performance, Kenya.
Highlights
Privatization involving the sale of government ownership to private investors is often seen as a remedy to transformState Owned Enterprises (SOEs) to become efficient and profitable
This study investigated the influence of ownership structure on financial performance of privatized companies in Kenya for the period of 2007 to 2013
Dispersed shareholders have a positive influence on Return on Assets (ROA) but a negative effect on cost efficiency
Summary
Privatization involving the sale of government ownership to private investors is often seen as a remedy to transform. State Owned Enterprises (SOEs) to become efficient and profitable. The government as an owner of commercial. Enterprises is deemed inefficient due to wide separation between ownership and control which makes it difficult to monitor managers. The agency theory contends that private shareholders influence performance by monitoring the managers to protect their investments. The resource based theory recognizes that private shareholders bring in resources and expertise required by a company to improve governance and financial performance of corporate entities
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