THE ROLE OF INTERNAL CONTROLS AND CAPITAL STRUCTURE IN THE RELATIONSHIP BETWEEN GOVERNMENT OWNERSHIP AND FINANCIAL PERFORMANCE OF STATE ENTERPRISES IN KENYA

Abstract

The primary objective of this study was to examine the impact of government ownership, internal
controls, and capital structure on the financial performance of state enterprises in Kenya. The
theoretical framework employed in this study encompassed various theories, including the Agency
Theory as the foundational theory, complemented by the Management Control Theory, Trade-Off
Theory, and the Public Choice Theory. A positivist philosophy was adopted, along with a
longitudinal research design, to investigate the subject matter. The study population consisted of
62 state enterprises, and secondary data was utilized for analysis. The researcher employed both
descriptive and inferential statistics to analyze the collected data, employing regression analysis
and other statistical tests to test the formulated hypotheses. The combined influence of government
ownership, internal controls, and capital structure was determined to have a significant impact on
financial performance. The implications of these findings are expected to provide valuable insights
for managerial practitioners within state enterprises, facilitating their comprehension of the
integration of various factors affecting financial performance in the midst of a challenging
economic environment. Furthermore, it underscores the significance of effectively managing core
business processes to foster investor confidence within the country. In turn, the government bears
the responsibility of ensuring economic stability, thereby facilitating the provision of internal
controls and an appropriate capital structure through interventions that support investors in
generating dividends from their investments in state enterprises.
Key words: Government Ownership, Internal Controls, Capital Structure, Financial
Performance, State Enterprises in Kenya.