FINANCIAL MANAGEMENT PRACTICES AND FINANCIAL DISTRESS IN KENYAN PUBLIC UNIVERSITIES

Abstract

Financial distress describes any situation where an individual's or company's financial condition leaves them struggling to meet their obligations when they are due. A number of public Universities are struggling financially to meet their daily operations and they have also failed to meet their obligations to creditors. Many studies have been done with emphasis on the private enterprises and many other studies fail to link financial management practices and distress in public universities. The main objective of this study was to establish the effect of selected financial management practices on financial distress of Kenyan Public Universities. The specific objectives were to: assess the effect of capital budgeting practices, establish the effect of working capital management practices, examine the effect of financial management information system, establish the effect of risk management practices and to evaluate the moderating influence of internal governance practices on the effect of selected financial management practices on financial distress of public Universities in Kenya. The study was guided by budgetary control theory, Walkers three preposition theory, risk management theory and systems theory. The positivism paradigm guided the study. The study adopted a mixed research design, targeting a population of 140 respondents comprising Deputy Vice Chancellors (Finance and Administration), Finance Officers, ICT Officers, and Internal Auditors from the 35 public universities in Kenya. Using a census approach, data was collected from 131 respondents across 31 universities.out of a total of 35 univerisities. Questionnaires were used to collect primary data while secondary data was used to obtain information on the dependent variable. Reliability was tested using Cronbach’s Alpha. Experts and factor analysis were used to test validity of instrument. Data was analyzed using descriptive statistics in the form of means, standard deviation and variances. Inferential statistics consisted of correlation analysis and multiple regression analysis to establish the relationship between the selected financial management practices and financial distress. The study depicted that financial management practices explain 54.5% and 59.4% variation in financial distress without and with moderating effect of internal governance practices. Regression analysis indicated that capital budgeting practices, working capital management, financial management information system and risk management practices had a significant effect on financial distress with a coefficient of -0.097, - 0.129, -0.091 and -0.133 respectively without moderating effect internal governance practices and -0.083, -0.161, -0.112 and -0.57 respectively with moderating effect internal governance practices. The study concluded that capital budgeting practices, working capital management, financial management information system and risk management practices moderated with internal governance practices had a negative and significant effect on financial distress. The study therefore recommended that universities should prioritize establishing good capital budgeting practices, public universities should establish comprehensive cash management policies to ensure efficient utilization of funds and that public universities should implement strict risk management measures and promote a culture of good internal governance. The study findings will help in coming up with laws and regulations that will address issues of financial distress in the education sector and in particular the public universities. To academic scholars the study will act as a source of empirical literature and grounds for conducting further studies in financial management practices and financial distress.