EFFECT OF PORTFOLIO RESTRUCTURING ON SHAREHOLDERS’ WEALTH OF FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE, KENYA

Abstract

In a contemporary globalized economic landscape, competition for shareholders’ wealth is
becoming increasingly intense thus companies must strive to offer adequate rate of return to
investors to remain relevant and ensure continuous funding. Portfolio restructuring aims to
optimize portfolio performance, enhance portfolio returns and manage risk thereby boosting
shareholders’ wealth. However, portfolio restructuring may also lead to increased cost such
as advisory and service fees, transaction cost, tax implications, loss of synergies and reduced
economies of scale that may lower shareholders’ wealth. Therefore, this study sought to investigate the effect of portfolio restructuring on the shareholders’ wealth of firms listed at
the Nairobi Securities Exchange (NSE). The study was anchored on agency theory and resource-based view theory and a causal research design was used. The target population consisted of 64 listed firms at the Nairobi Securities Exchange as at 31st December 2023. However, adequate data for 54 firms was obtained yielding 534 firm-year observations for the
period 2014 to 2023. Descriptive and inferential statistics were used for data analysis. Structural equation modelling was fitted for the analysis. The study found that portfolio restructuring positively influences the shareholders’ wealth of firms listed at the NSE (β = 1.433, p
< 0.001). The study recommends that managers of listed firms should adopt a strategic approach to portfolio restructuring by continuously evaluating their business units or investments to identify areas for divestiture or reinvestment. This helps concentrate resources on
core profitable areas while eliminating operational inefficiencies associated with underperforming or non-core segments to maximize shareholders’ wealth.