THE IMPACT OF INSTITUTIONAL REFORMS ON STOCK PERFORMANCE ON THE MALAWI STOCK EXCHANGE: LESSONS FROM PRIVATIZATION PROGRAMS

Abstract

This study was undertaken to assess the impact of institutional reforms and subsequent privatization in the development of Malawi Stock Exchange (MSE) and stock performance. The study split the MSE listings into privatization and normal categories. It thereafter reviews the development of the MSE by the number of listings, growth in market capitalization and stock performance since inception. The emprical findings show conclusive evidences that reforms helped to increase the number of listings and growth in market capitalizations. However, there were mixed outcomes in the analysis of stock performances using Capital Asset Pricing Model (CAPM). The initial CAPM analysis shows that normal listings are more risky than privatization counterparty though this outcome seems to be influenced by FMB beta which is an outlier in the normal listings category. With the control placed on FMB and then banking sector peers, the results are reversed with normal listings being less risky than privatization listed stocks. This finding tends to conculde that normally listed stocks are better stocks than privatized listed stocks in terms of risk profile. However, there is supporting evidence under the market indices that the privatized stocks give better than the counterparty on the MSE.