Financial Management Practices and Financial Sustainability of Public Universities in Kenya
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Date
2024-10
Authors
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Publisher
Kenyatta University
Abstract
Public universities play a critical role through academic empowerment of the citizens and actively participating in knowledge dissemination and research in the society. However, despite being the centers of knowledge creation and development, one of the significant challenge facing public universities in Kenya is financial sustainability. This is evidenced by growing debt from financial institutions, unremitted statutory deductions and shrinking government grants. Whereas proponents of sound financial management practices (revenue diversification, budgetary control, and financial risk management) hold the practices as possible solutions for financial sustainability of every organization, few studies have been done to ascertain this position in Kenyan public universities. The objective of this research was to assess the effect of financial management practices on financial sustainability of Kenyan public universities. Financial sustainability was the dependent variable while revenue diversification, budgetary control and financial risk management were the independent variables. The study used modern portfolio theory, budgetary control theory and financial sustainability model to discuss the variables. Descriptive research design was adopted while targeting 41 public universities for the study. Random sampling approach was applied to select 22 out of the 41 public universities. Using a secondary data collection template, secondary panel data was collected from the office of auditor general for the financial years 2018/2019 to 2022 / 2021. Descriptive statistics, inferential statistics, multiple panel regression analysis and diagnostic tests were carried out to ensure the most appropriate analysis model was chosen and valid consistent results are achieved.The study found revenue diversification had a negative significant impact on financial sustainability using gearing ratio and a positive significant effect on financial sustainability using sustainability ratio in Kenyan public universities. On budgetary controls, the study found out that realized budgeted revenue had negative significant effect on financial sustainability using gearing ratio and a positive significant effect on financial sustainability using sustainability ratio. Utilized budgeted expenditure had negative insignificant effect on financial sustainability using gearing ratio and a negative significant effect on financial sustainability using sustainability ratio in Kenyan public universities. Lastly, in regards to financial risk management the research revealed credit risk using student debt ratio had positive insignificant effect on financial sustainability using gearing ratio and negative significant effect on financial sustainability using sustainability ratio while liquidity risk using current ratio had a negative significant effect on financial sustainability using gearing ratio and a positive significant effect on financial sustainability using sustainability ratio in Kenyan public universities. The study recommends thatpublic universities should explore innovative alternative sources of revenues and close revenue generating units whose marginal costs are higher than marginal revenues. The public university regulators and policy makers should develop policies to regulate key financial indicators including liquidity and student debt ratios in order to improve financial sustainability of Kenyan public universities
Description
A Research Project Submitted to the School of Business, Economics and Tourism in Partial Fulfillment of the Requiremnts for the Award of Degree of Master of Business Administration (Finance Option) of Kenyatta University, October 2024.
Supervisor
Anthony Mugetha Irungu