Does budgeting processes affect firm financial performance? evidence from tea factories in rift valley region, Kenya

Abstract

The tea sub-sector plays an importance role in the economy of the country through employment to many Kenyans both directly and indirectly and contributes over 26 percent of the total foreign exchange earnings according Kenya’s Economic. Nevertheless, tea factories in Kenya have had many problems ranging from the high manufacturing costs and other operating costs together with the declining global tea prices due to oversupply of tea to the world market and this results to low returns to the farmers. The purpose of the research was to established the relationship between budgeting process (independent variable) and financial performance (dependent variable) of tea processing factories. The study employed correlational research design as it enabled establishment of relationship between variables. The census survey method was appropriate as the sample size was small. The study targeted all the KTDA parent tea factories in Kericho and Bomet counties with a sample of 96 respondents drawn from 7 factories. The study found that 80.8% of variations in financial performance was predicted by the dependent variables (R2 =0.808; p<0.05). Specifically, there was positive relationship between budgeting process variables (planning, monitoring and control and participative budgeting) and financial performance and as indicated by b=0.631(p<0.05), b=0.631(p<0.05) and b=0.631(p<0.05) respectively. The equation Model Y = α + 63.1 X1 + 50.2X2 + 69.5 X3 + ε was therefore formulated. The research findings may be used by policy makers in emphasizing the importance of budgetary control on companies’ performances. Equally, the findings may serve as a basis for further research in similar field.