FINANCIAL RISK MANAGEMENT AND FINANCIAL PERFORMANCE OF COUNTY GOVERNMENTS IN EASTERN REGION, KENYA
Abstract
Purpose of the study: The purpose of the study was to assess the effect of financial risk management on financial performance of County Governments in Eastern Region, Kenya.
Statement of the problem: Financial risk management measures have been put in place to impact financial performance in Kenyan County Governments but despite that, they still experience cases of; incomplete records, lack of active audit units, non-adherence to the Public Finance Act, and approved budgets which has adversely affected the larger Kenyan economy due to budget misuse.
Methodology: The study adopted positivism philosophy and descriptive research design. The target population consisted of three (3) County Governments in Eastern Kenya namely Meru, Tharaka Nithi and Embu Counties. The target respondents were 60 finance officers working in four (4) departments in the Ministry of Finance and Economic Planning namely, Budgeting, Economic Planning, Monitoring, and Evaluation, Auditing and Accounting Services and Financial Reporting departments. A sample of forty-eight (48) respondents (finance officers) were selected using purposive sampling. The study utilized primary data which was collected and gathered using questionnaires. Data analysis was done using descriptive statistics (means and standard deviations) and multiple linear regression analysis with the aid of SPSS version 23. Hypothesis testing was carried out at 0.05 significance level.
Findings: The study found that risk governance, risk assessment and internal control systems had a positive and significant effect on financial performance whereas risk response strategies have a negative but significant effect. The study also found the moderating effect of inflation on the relationship between financial risk management on financial performance to be insignificant.
Conclusion: The study concludes that increasing risk board independence would positively increase budget utilization because independent and best policies for the benefit of counties in regard to budget utilization would be developed and implemented.
Recommendations: The study recommends that county governments should ensure the risk handling unit is independent, well equipped with up-to-date technology and well-staffed to ensure risks are easily assessed and seamlessly addressed to enhance effective financial performance. County governments should always undertake cost-benefit analysis before they embrace any particular risk response.
Keywords: Financial risk management, risk governance, risk assessment, internal control systems, risk response strategies, financial performance
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