Relationship between financial distress management practices and performance of selected county governments in Kenya

Abstract

The subject of financial distress on organization has become more important to stakeholders of organization as management of this situation can lead to either turn-around. County Governments experience financial distress in different forms such as difficulties in paying current liabilities and short term obligations such as paying salaries, suppliers and creditors in time. This makes the Counties to work on overdrafts which are expensive in terms of interests or rely on Central Government for financial bailouts and support. Counties have adopted several financial distress management practices but still there is limited knowledge on the relationship between financial planning, county governance and internal control practices and performance of Counties prompting the need to carry out this study. The specific objectives of the study were to establish the relationship between financial planning practices and performance of selected County Governments in Kenya, to examine the relationship between County Governance practices and performance of selected County Governments in Kenya and to examine the relationship between internal control practices and performance of selected County Governments in Kenya. The study was anchored on financial distress theory. Correlation survey research design was used and targeted County Executive Committee Members, financial officers, Chief Officers and County accountants from various departments in Kericho, Bomet and Narok Counties. The target population was 207 respondents. Yamane Taro’s formula was used to determine a sample size of 136 respondents who were selected using stratified and random sampling technique. Primary and secondary data were used for the study where primary data were collected using questionnaires. Financial statements from County Offices were used for secondary data. Instrument validity was determined by use of the content experts and supervisors while instrument’s reliability was determined by use Cronbach’s alpha coefficient. Obtained data was analyzed using both descriptive and inferential statistical techniques and presented using graphs, charts, frequency tables and regression model. The study findings revealed that financial planning practices (R=0.581, P<0.05), internal control practices (R=0.626, P<0.05), and county governance practices (R=0.484, P<0.05) had statistical significant relationship with performance. This implies that the county government of Kericho should put more emphasize on county governance practices and county government regulatory in order to enhance financial performance. The study recommended that good budgeting and budget implementation practices should be put in place to help the county government to control, use and evaluate effective use of resources. The county government also should put in place periodic monitoring and evaluation programs this could allow the county to be effective and efficient in their service delivery. The findings may be of beneficial to County managements to turn around the financial fortunes of County Governments in dealing with their financial shortcomings. The study suggests further research to be conducted on other variables which might affect performance of county governments apart from the current variables which were under investigation.