Impact of Demutualization on the Performance and Investor Confidence of the Nairobi Securities Exchange

A Project Report Submitted to the Chandaria School of Business in Partial Fulfillment of the Requirement for the Degree of Masters in Business Administration (MBA)The purpose of the study was to analyze the impact of demutualization on the performance and investor confidence of the Nairobi Securities Exchange (NSE). Particularly, the study further aimed to answer three research questions: the impact of demutualization on financial performance of NSE, the impact of demutualization on non-financial performance of NSE and the impact of demutualization on investor confidence in NSE. The study adopted the descriptive research design. The study used descriptive statistics to summarize the data and to perform comparisons of non-financial performance and investor confidence in the NSE before and after demutualization. Inferential and descriptive statistics were used to establish whether there was a significant difference between the financial performance in the pre and post demutualization phases of the NSE. The findings showed that demutualization had a somewhat positive impact on the financial performance of the NSE. Demutualization was found to have had a positive impact on market capitalization, listings and revenues, but it failed to improve managerial efficiency of the NSE. The findings further indicated that demutualization had improved the non-financial performance of the NSE. Demutualization was found to have improved efficiency through trading technologies and brought about innovative new products, but failed to reduce trading costs. With regards to investor confidence, the findings revealed that demutualization had improved the NSE’s ability to protect investor rights, increases liquidity and broadened the NSE’s investor base but failed to improve NSE’s responsiveness to stakeholders. The study concludes that demutualization is found to have had a mixed impact on the financial performance of the NSE, but a positive impact on non-financial and investor confidence in the bourse. The study recommends that NSE should work towards shortening trading cycles, bring down the relatively high trading costs, enhance accessibility to information and improve responsiveness to stakeholders