Effect of Budgeting Practices on Financial Performance of Commercial State Corporations in Kenya

Abstract

Budgeting practices can have a significant impact on the performance of organizations. Effective budgeting practices can help organizations achieve their financial goals, allocate resources effectively, evaluate performance, maintain control and accountability, and promote communication and transparency. By doing so, effective budgeting practices can lead to improved financial outcomes such as higher revenues, lower expenses, and better profit margins. This study sought to establish the effect of budgeting practices on financial performance among commercial state corporations in Kenya. The study was guided by three theories namely; agency theory, resource dependency theory and transaction cost theory. A descriptive research design was adopted. The population of the study was the 54 commercial state corporations in Kenya. The study collected both primary and secondary data. The unit of analysis was the head of finance in each commercial state corporation. Data analysis involved descriptive, correlation as well as regression analysis. The independent variables for this study were budget planning, budget implementation and budget evaluation while the control variables were firm size and leverage while the dependent variable was financial performance. The regression results revealed that 63.8% of the variation in financial performance can be attributed to the 5 selected variables in this study. It was evident from the Anova table that the degree of significance was 0.000. This value was less than the p value of 0.05. Consequently, the model was therefore statistically significant for predicting financial performance based on budgeting practices. Individually, budget planning, budget implementation, budget evaluation and firm size were found to be significant determiners of financial performance while leverage did not have a significant effect. The study recommends the need for policy makers to come with guidelines and policies guiding commercial state corporations on budgeting practices. The management of commercial state corporations should hire qualified and competent employees who will be able to successfully implement the formulated budgeting strategies as this will be a sure way of enhancing financial performance