DETERMINANTS OF SUSTAINABLE FINANCIAL PRUDENCE IN PUBLIC UNIVERSITIES IN KENYA

Abstract

The study assessed the factors that affect the nature and outcome of sustainable financial prudence in public universities in Kenya. The general theory of finance, agency cost theory, pecking-order theory, financial management model, resource dependency theory and the African Political Economy model further guided the study. The study adopted descriptive survey research design and targeted 31 public universities and their constituent colleges in Kenya. A census of the universities was carried out and from these the 101 management and staffs from the accounts and finance departments and from the administration were randomly selected for interviews. The study employed semi-structured questionnaires to collect data. The research instrument was pilot tested in order to determine its reliability and validity before it was used to collect data for the final study. The data collected were analyzed by the aid of the Statistical Package for Social Sciences Version 24. Data analysis was both descriptive and inferential. Descriptive analysis constituted finding the percentages, means and standard deviations for data touching on the study variables. On the other hand, inferential analysis was in form of both Spearman rank correlation co-efficient and multiple regression analysis. The findings of the study were presented in form of figures, and descriptive and inferential statistical tables. The study indicated that the more the public universities enhanced their Income Generating Activities, the greater the likelihood of moderately increasing their sustainable financial prudence (rs= 0.575; p< 0.05). It was intimated that strengthening the internal control system in public universities was likely to result in enhanced sustainable financial prudence (rs= 0.554; p< 0.05). The study also indicated that strengthening management support in the foregoing institutions was bound to enhance sustainable financial prudence (rs= 0.557; p< 0.05). The relationship between credit controls and sustainable financial prudence in local public universities was found to be positive, strong and significant (rs= 0.603; p< 0.05). In addition, the study found that external borrowings were likely to marginally affect sustainable financial prudence in the aforesaid institutions (rs= 0.358; p< 0.05). Moreover, the study indicated that 62.4% of sustainable financial prudence in local public universities could be explained by income generating activities, internal control system, management support, credit controls, and external borrowing. Income generating activities, internal control system, management support, and credit controls were concluded to be essential in enhancing sustainable financial prudence in local public universities. However, external borrowing was inferred to have marginal effect on the sustainable financial prudence in local public universities. It is recommended that public universities in Kenya should ensure that they have sound management reporting and financial systems in the income generating activities and a strong internal control system. It is further recommended that public universities utilize their computerized systems for effective financial reporting and for these institutions to have strong credit policies. Lastly, public universities in Kenya should formulate a policy that can effectively guide them when borrowing particularly externally.