Effect of management accounting practices on the financial performance of commercial banks in Kenya.

Abstract

Management accounting has always been a critical element of the management function as enhances quality of decision making. The research purpose entailed explaration of the impact of management accounting practices on the financial performance of Kenyan licenced and operative commercial banks. The research had costing system, budgeting, evaluating performance, decision making information and strategic analysis as independent variables and return on assets as the dependent variable. The contingency theory was the anchor theory and it highlighted the lack of uniformity in applying management accounting practices across organizations. The contingency theory was relevant to the study as it demonstrated the dynamic nature of MA practices across the commercial banking industry in Kenya. The theory also proposed specific factors that management teams must consider in deciding the appropriate management accounting practices suitable for their operations. The study population of this study consisted of all commercial banks operative in Kenya as of September 2020. The study used a descriptive and a cross-sectional study design and relied on primary data. Descriptive statistics and inferential statistics were the mode of statistics. 38.1% of the variations in ROA, the dependent variable was explained by MA practices which formed the study’s independent variables. The results also showed that the standard error of estimate is 0.374 hence showing that there is little variation and thus the correlation will be almost perfect. Return on assets had a weak and negative correlation with performance evaluation, strategic analysis and information for decision making but showed a weak and positive correlation with costing system and budgeting. The study found out an insignificant positive relationship between return on assets and costing system whereas there was a minor positive relationship between ROA and budgeting. The findings also found out that performance evaluation had a minor negative relationship with ROA. Further the table shows that information for decision making had a negative relationship with ROA. The findings further showed that strategic analysis has a negative relationship with ROA. The study came to a conclusion that costing system and budgeting practices in banks have a positive effect on ROA among banks in Kenya. However, the research recommended that bank managements should be wary about these Management accounting practices fluctuations as it could affect bank ROA. The researcher recommended that bank managements should have policies on how to reduce these fluctuations and finally the researcher recommended that more research is done involving all other management accounting practices and how they affect ROA.