Relationship between Expenditure Management and Financial Performance of State-Owned Commercials in Kenya
Abstract
State-owned commercials (SOCs) are essential to Kenya’s economic development by driving public policy, growth, social welfare, and employment. The Kenyan government manages 61 SOCs, 39% of which faced financial distress by 2018 due to arrears, high operating expenses, and rising debt. This study examines how expenditure management, specifically administration, selling and distribution expenses, and depreciation expense ratios, affects the financial performance of SOCs in Kenya. The study was grounded on public choice theory employing a positivist philosophy and correlational design. It targeted all 61 SOCs in Kenya, using panel data from 2018–2023 obtained through a census of audited financial statements. Validity was ensured through expert review, rigorous design, pilot testing, and triangulation with prior studies, while reliability was confirmed using test-retest and Cronbach’s alpha (α = 0.91). Data analysis combined descriptive statistics, which include means and standard deviations, with inferential techniques of multiple regression under a random effects model and Pearson correlation, executed in SPSS version 27. The empirical results revealed that expenditure management exerts a strong, negative, and statistically significant relationship with financial performance (β = –0.474, p < 0.05). Specifically, the administration expense ratio had a strong and highly significant negative relationship with ROA (β = –0.446, p < 0.05), showing that higher administrative costs substantially reduce performance. Sales and distribution expense ratio showed a positive but insignificant relationship with ROA (β = 0.037, p > 0.05), signifying no meaningful influence. Depreciation expense ratio had a significant negative relationship with ROA (β = –0.143, p < 0.05). The study concluded that the financial performance of Kenyan SOCs is highly sensitive to expenditure control, necessitating the need for prudent financial management. These findings hold practical relevance for policymakers and SOC managers in enhancing efficiency in expenditure management with a view toward enhancing sustainability, efficiency, and long-term profitability.
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