Budgeting Practices and Financial Performance of Housing Construction Firms In Nairobi City County, Kenya
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Date
2023
Authors
Mutabari, Kathure Fridah
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Budgeting is a crucial element for the success of any enterprise. Budgets provide managers with the essential information required to evaluate a company's performance and guide fiscal allocation plans across various company elements. Various systems and procedures are implemented to improve business performance to ensure fiscal expansion. Therefore, this study investigated the effect of budgetary practices on the financial performance of housing construction firms in Nairobi County, Kenya. Specific objectives addressed were: (i) to evaluate how budgetary control affects the productivity of construction firms; (ii) to investigate how budgetary planning affects the efficiency of construction firms; (iii) to examine how budget coordination affects the efficiency of construction firms; (iv) to determine how budget communication affects construction firms' performance; (v) to investigate the impact of budget evaluation on construction firms' performance. The study of the objectives were guided first by the goal-setting theory, which linked budgetary planning, budgetary control, budget communication, and budget evaluation to the financial performance of housing construction firms. Further, it used the agency theory which stipulates that agents and principals have divergent interests, and the firm‟s performance is unlikely to occur without budget coordination. Then, the budget control theory was integrated to explore how firms' performance can be improved using budgets to control the expenditure of resources. The study followed a cross-sectional design with a random sample of 196 firms. Primary data was collected through the administration of questionnaires from the targeted participants. The researcher analyzed the data using descriptive statistics, which includes measures of mean and standard deviations, and inferential statistics, such as multiple regression and correlation analysis. To assist in this analysis, SPSS version 28 and STATA 17 were employed. Multiple regression analysis explored the relationship between budgeting practices and financial performance. The study utilised Principal Component Analysis to create a single index variable used as the dependent variable in the multiple linear regressions. The results indicated a positive association between budget control, coordination, evaluation and financial performance, accounting for 37.3% of the variance. The study suggests that implementing control activities, coordination, and evaluation processes can enhance the financial performance of housing construction firms in Kenya. The findings of this study provide valuable insights into budgeting practices that can lead to improved financial performance for housing construction firms in Nairobi County, Kenya. Therefore, it is recommended that housing construction companies in Nairobi County, Kenya, should prioritize budget control, budget coordination, and budget evaluation practices to improve their financial performance. The study also recommends further research to explore other factors.
Description
Budgeting Practices and Financial Performance of Housing Construction Firms In Nairobi City County, Kenya
Keywords
Budgeting Practices, Financial Performance, Housing Construction Firms, Nairobi City County, Kenya