The relationship between budgetary participation and financial performance of companies quoted at the Nairobi stock exchange

Abstract

Most of the research in this area had focused on the USA, the UK and Australia. There was a scarcity in literature on participation and commitment in budget setting in the NSE listed companies. It was in this light that the researcher carries out an investigation into the participatory budget setting and budget commitment as a factor that affects performance of the NSE listed companies. This study used a causal research design to identify cause and effect relationship. The population of interest in this study comprised 55 companies listed where it considered only 53 still operating ones. The targeted respondents were senior, middle and low management staff in the respective firms. Questionnaires were self administered through hand delivery to the respondents. Secondary data on financial data was obtained from annual reports and financial statements of the quoted companies which were obtained from the NSE and from individual listed companies. Data for this study was both quantitative and qualitative hence both descriptive and content analysis techniques will be employed. The descriptive statistical tools helped the researcher to describe the data and determine the extent used. In addition, to quantify the strength of the relationship between the variables, the researcher used a multiple regression. The study concludes that budgetary participation affects return on capital employed to a great extent, return on assets to a great extent, budgetary participation affects return on investment and budget commitment to moderate extents, performance evaluation affect motivation in the budgetary process to a great extent and budget commitment in budgetary participation affects financial performance of the companies quoted to a moderate extent. The study recommends that, for organizations to realize full benefits of budget performance evaluation there is need to ensure that there is adequate strategic plan, functional co-ordination tool, control of performance and integrated plans and objectives to enhance performance evaluation. The study recommends that the organizations need to establish contingent budgetary targets, processes and accounting information/communication to enhance employee motivation in the budgetary process. This study recommends that the organizations need to enhance performance evaluation strategies as well as by establishing proper guidelines in the changing of offices, funding of budgets, budgeting processes and management. The study further recommends that, since commitment affects financial performance of the companies to a great extent, the organizations need to establish strong strategies with regard to budget inflexibility, pressures, modern performance evaluation, commitment among the budgeted items for scarce funds and political interference.