The Effect of Organizational Structure on Financial Performance of Commercial State Corporations in Kenya

Abstract

There is a growing recognition of the importance of organizational structure in aligning the success and financial performance of any organization. The main purpose of this study was to determine effect of organizational structure on financial performance of commercial state corporations in Kenya. Specifically it focused on the effect of organizational size of on the financial performance of commercial state corporations; effects of structure formalization to financial performance; the extent structure complexity affect financial performance of commercial state corporations; and the extent structure centralization affect financial performance of commercial state corporations in Kenya. The findings of this study were to provide the necessary information to commercial state corporations and enhance its endeavor to meet both current and long-term demands. The study employed a survey research design and targeted all the 34 purely commercial state corporations in Kenya. The study used both structured / closed ended and unstructured / open ended questionnaires to collect data. Both qualitative and quantitative data was analyzed. Inferential statistics was employed whereby correlation and multiple linear regressions were used to establish a relation between and among the studied variables. A Statistical Package for Social Sciences (SPSS) was used to analyze data. From the study findings, the regression results revealed that there is a positive relationship between dependent variable return on assets (ROA) and independent variables; Organizational size, structure formalization, structure centralization and structure complexity. The results indicated that one unit change in organizational size results in 0.971 units increase in financial performance, one unit increase in structure formalization results in 0.739 units increase in financial performance, one unit change in the structure centralization results in 1.271 increase in financial performance and one unit change in structure complexity results in 0.835 units increases in institution’s financial performance. F-tests and t-tests of significance were carried out at 95% confidence level (α = 0.05). The results indicated F-tests of 0.678 with a significance value of 0.000, t-tests of; organizational size of 2.021 with a significance value of 0.045, structure formalization of 1.157 with a significance value of 0.210, structure complexity of 1.194 with a significance value of 0.234 and structure centralization of 2.617 with a significance value of 0.095. In this case, all the four variables were important and have strong positive relationships. The conclusion from the study findings was that organization structure affected the financial performance of commercial state corporations. It is thus recommended that organizational size, structure formalization, structure complexity and structure centralization should be considered to be very important when corporation’s management is developing their organizational structure that will achieve their strategic objectives since it has effect on financial performance of the corporations. Board members, their size and composition should also be considered as they are actively involved in shaping commercial state corporations’ strategic directions