The Moderating effects of the Mwongozo Code of Governance on the drivers of financial sustainability in State Corporations in Kenya

Abstract

Due to resource scarcity, environmental concerns, the need for sustainable reporting, and rising societal expectations, the question of how government-owned entities can achieve financial sustainability while reducing their reliance on government subsidies persists. The poor performance of State-Owned Enterprises (SOEs) and failing Public Universities, characterized by an over-reliance on government subsidies, has continued to raise concerns about the governance of government entities. Corruption, insufficient technological advancement, inadequate service delivery, and numerous losses have raised the need for improved governance and privatization, highlighting unsustainable and inept behaviour. State Corporation (SC) resilience in an ever-changing world requires a sharp focus at the policy level. Sustainability is critical to managing firms, considering economic, social, and environmental concerns. This research aimed to examine the moderating role of the Mwongozo Code on sustainability in the public sector, specifically its impact on the drivers of financial sustainability. The primary objective was to assess the moderating effect of Chapter Seven of the Mwongozo Code of Governance on the financial sustainability drivers of State Corporations in Kenya. The specific objectives of the research included assessing the effects of working capital management on the financial sustainability of SOEs in Kenya, examining the impact of financial risk on the financial sustainability of SOEs in Kenya, investigating the effects of board diversity on the financial sustainability of SOEs in Kenya, assessing the impact of financial investment on the financial sustainability of SOEs in Kenya, and evaluating the moderating effect of the Mwongozo Code on the relationship between drivers and financial sustainability of SOEs in Kenya. The study utilized a multi-theoretical approach to explain the relationship between variables and sustainability. Stakeholder Theory, Resource-based Theory, and Corporate Sustainability Theories supported the study's framework. Top-level managers in Kenya's State-owned corporations, spanning the financial, regulatory, service, and commercial sectors, were the primary focus due to their strict compliance regulations and standards, as well as their significant revenue contributions. Out of Ninety-Seven (97) respondents for the study, only 58 participated. A positivist research philosophy and explanatory research design were employed. Structured online questionnaires were distributed among the respondents. Data were analyzed through descriptive and inferential statistics, including Pearson’s correlation and ordinary least squares regression analysis. The regression results indicated that financial risk, financial investment, board diversity, and working capital management had a significant positive relationship with the financial sustainability of State Corporations. However, financial risk management exhibited the most significant change among the variables in relation to sustainability. The Mwongozo Code of Governance, as a moderator, demonstrated a significantly positive impact on the relationship between financial sustainability and its drivers in Kenya's State-owned corporations. This suggests that governance plays a significant role in sustainability, and risk policies related to mitigation strategies should be prioritized in all State Corporations. An investment committee should be made part of the board's responsibility, and equally separate the two parameters in the Mwongozo Code of Governance. Furthermore, financial investment policies within the State Corporation would enhance risk assessment and performance monitoring, thereby facilitating faster and more informed decision-making. Finally, adherence to the code should be included in the performance contracts for executive management during the board's evaluation. This enhances its compliance and transparency of governance matters. Key words: Financial sustainability, Governance, State Corporations