The relationship between budgetary control and financial performance of the insurance companies in Kenya
Kinyua, Faith. K
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A robust economic backdrop has been a key driver of underwriting activity and is likely to continue to be so over the coming years. A growing middle class and increased levels of households spending are creating an opportunity for both life and non-life insurers to grow their business. However, for sustainable financial performance and growth, there is dire need for good budgetary controls practices in any organization hence need to carry a further study on the same. This study sought to establish the relationship between the budgetary controls and the financial performance of the Insurance companies in Kenya. To achieve this objective, the study investigated the levels of planning, monitoring systems and participation in budget making. The study adopted a descriptive research design. The data used was primary and secondary data. The sample size of the study was 220 drawn from all the 44 insurance companies listed by IRA as at 2014. Secondary data necessary for the computation of the ROA was collected from the audited financial statements filed with the regulators (IRA). The data collected was then analyzed through descriptive and inferential statistics. The study found that budgetary controls such as planning for the budgets early, budget preparation and forecast enabled the budgets to be effective and efficient. Proper monitoring of the budgeting and budgeting process also proved to be efficient and significantly influenced the financial performance of the insurance companies. Lastly, participative budgeting was found to have a direct relationship with financial performance of the companies (r=0.247, p=0.000). All the aspects of budget control were found to have a direct relationship with financial performances of the companies and to increase the ROA of same companies. The study recommended that management incorporates the three controls measures in their budget making activities for higher financial performance of organizations.
University of Nairobi