PARTICIPATORY BUDGETING AND FINANCIAL PERFORMANCE OF PARASTATALS WITH LIQUIDITY GAPS IN KENYA

Abstract

Most parastatals have embraced participatory budgeting to ensure proper utilization of available resources. Despite the implementation of participatory budgeting, parastatals still experience challenges, which lead to poor financial performance. The study’s main objective was to determine the effect of participatory budgeting on financial performance of parastatals with liquidity gaps in Kenya. The specific objectives were; to determine the effect of awareness of budget process regulations on financial performance of parastatals with liquidity gaps in Kenya, to examine the effect of stakeholders’ involvement in budget implementation on financial performance of parastatals with liquidity gaps in Kenya and to evaluate the effect of stakeholders’ involvement in monitoring and evaluation on financial performance of parastatals with liquidity gaps in Kenya. Theories that guided the study were budget theory, resource dependence theory and agency theory. Pragmatism philosophy was adopted. A correlation research design was employed. The target population comprised 424 respondents, including procurement officers, procurement clerks, finance officers, accountants and managing directors. The sample size was obtained using Fischer’s method. In Kenya, the study was conducted in eight parastatals experiencing liquidity gaps. Primary data was collected using questionnaires, and audited financial statements were used to collect secondary data. Pilot study was conducted at Kenya Power and Lightning Company. The research tools' dependability was examined using Cronbach's Alpha. Factor analysis was used to evaluate the construct validity. Descriptive and inferential statistics were generated using Statistical Package for Social Sciences (SPSS). Descriptive statistics included percentages and frequencies. Diagnostics tests carried out included normality, autocorrelation, multicollinearity and heteroscedasticity. Inferential statistics include correlation analysis, regression analysis and ANOVA. The findings revealed that awareness of budget process regulations had a coefficient of -0.056 with a p-value of 0.009, stakeholders’ involvement in budget implementation had a β of -0.042 with a p-value of 0.003 while stakeholders’ involvement in monitoring and evaluation had a regression coefficient of -0.040 with p-value of 0.001 at 5% significance level. The regression model showed an R-squared of 0.615 while ANOVA had an statistic of 4.725 with a p-value of 0.04. The information obtained may help the government formulate strategies and policies to improve the involvement of the public in the budget-making process. The study suggested that parastatals adopt participatory budgeting in order to improve financial performance. Parastatals should also ensure stakeholders' priorities are taken into consideration to ensure their interests are prioritized, hence achieving financial goals.