Analysis of financial control practices on performance of manufacturing firms in Kisumu county, Kenya

Abstract

Globally, manufacturing play a vital role in an economy of any nation as evidenced by its increase in Gross Domestic Product which is approximated $2.1 trillion in GDP (12.5% of total U.S. GDP) and industry supports almost 17.1 million indirect employment in the United States, together with 12.0 million people directly absorbed in the industry, from summation of 29.1 million direct and indirect jobs offered, a number higher than 21.3% of total U.S. employment. In Kenya, 71% of the manufacturing firms shut down in their third year of operation due to lack of operating funds. Importantly, their level of contribution to country’s GDP is only 1%. Records from Kisumu County, in fiscal year 2019/2020, indicates that manufacturing firms recorded a loss averaged 5%. However, this state of affairs may further be threatened by poor financial control practices. Previous studies attribute this poor performance to regulatory and corporate risk among other causes. The study purposed to analyze financial control practices on performance of manufacturing firms in Kisumu County, Kenya. Study objectives were to: determine the effect of asset control practice on performance; determine the effect of audit control practice on performance and determine the effect of budgetary control practice on performance of manufacturing firms in Kisumu County. Study was anchored by four theories namely: Finance Distress Theory, Shareholder Wealth Maximization Theory, Agency theory and Accountability Theory. Study employed correlational research design. Population targeted were thirteen (13) manufacturing firms in Kisumu County and a census survey was employed. Collection of primary data was aided by questionnaires administered to 36 employees drawn from production/operations, finance and accounting sections of the manufacturing firms. Pilot study involving three respondents was conducted and analyzed using Cronbach’s alpha whose values were all 0.7 and above indicating reliability of the instrument. Data analysis was done using descriptive and inferential statistics such as frequencies, percentages, mean, standard deviation and multiple regression analysis. The findings of the study were that asset control (B = -.228, p = .106) and audit control practices (B = -.393, p= 0.056) are negative predictor of performance implying that practice of asset control and audit control practices lead to erosion of performance. In addition, budget control practice positively and significantly influenced performance (B = .466, p= 0.005) implying that practice of budgetary control leads to increase in performance among manufacturing firms in Kisumu County. The findings from this study could be beneficial to policy makers in manufacturing firms and Government in setting policies in governing the operations of manufacturing firms in Kenya; shareholders before deciding on which investment to make that maximizes wealth and academicians use it as ground for further research.