BUDGETARY CONTROL AND FINANCIAL PERFORMANCE OF MANUFACTURING FIRMS LISTED ON THE NAIROBI SECURITY EXCHANGE IN KENYA

Abstract

In the recent past, manufacturing firms listed at Nairobi Securities Exchange have had several challenges, including making losses, inability to pay debts, and inability to align the actual expenses to the planned despite extensive use of budgetary control measures. Various attempts were made to enhance financial performance of the listed manufacturing firms including the government reducing production costs and allocating budget to act as subsidies but still, the problems persist. Therefore, this study looked at how listed manufacturing firms controlled the liquidity, debts and expenses to improve financial performance. The purpose of this study was to examine the influence of budgetary control on financial performance of listed manufacturing firms in Kenya. The specific objectives were to examine the influence of liquidity control on the financial performance of listed manufacturing firms in Kenya, to establish the influence of debt control on financial performance of listed manufacturing firms in Kenya, and to assess the influence of expenses control on financial performance of listed manufacturing firms in Kenya. The study used current ratio, debt ratio and expenditure variance as the measures for liquidity control, debt control and expenses control respectively. Pearson correlation analysis revealed that had a significant positive relationship with ROA, with an r = 0.5952, while debt control expenses control had a significant negative correlation with r = - 0.3566 and - 0.4044, respectively. Furthermore, the study showed that liquidity control, debt control, and expenses control had a significant influence on financial performance since they had coefficient values of 0.2585, -0.0793, and -0.3854,respectively, with p-values<0.05. The study concluded that liquidity control, debt control and expenditure control had significant influence on financial performance of manufacturing firms listed at NSE. The study recommends that listed manufacturing firms should understand the budgeted liquidity, debt and expenditure and perform continuous analysis for effective control as opposed to the current style where all variances are computed at the end of the year