THE RELATIONSHIP BETWEEN CAPITAL BUDGETING PRACTICES AND FINANCIAL PERFORMANCE OF COMMERCIAL STATE CORPORATIONS IN KENYA

Abstract

The study sought to determine the relationship between the usage of capital budgeting practices and financial performance of Commercial State Corporations in Kenya. The specific objectives were to establish the relationship between Accounting Rate of Return and financial performance of Commercial State Corporations in Kenya and establish the relationship between Net Present Value and financial performance of Commercial State Corporations in Kenya. A census research design was used and data collected from 53 Commercial State Corporations using a structured questionnaire. Primary data, the study targeted 53 finance managers from the head office of all the Commercial State Corporation in Kenya to fill questionnaires. The data was analyzed by use of descriptive and inferential statistics. Multiple regression analysis was used to establish the relationship of independent variables on financial performance of commercial state corporations. The results revealed accounting rate of return (-0.121) negatively affect financial performance of commercial state corporations. On the other hand, the usage of net present value (0.404) positively affects financial performance of commercial state corporations. The study concludes net present value has a positive relationship with financial performance while accounting rate of return has an inverse relationship with financial performance.