Do Quality of Decisions Influence Firm Performance? Insights From Commercial Banks and Insurance Firms in Kenya

Abstract

An organization’s quality of decisions may influence its overall performance. In order to develop an assessment of the decision situation, central decision makers gather most of their information through their direct environment. Strategic decisions have important consequences for organizational performance and are often the result of the involvement of actors both from inside as well as outside the organization (McKenzie et al., 2009). The purpose of the study was to establish the influence of quality of decisions on the performance of commercial banks and insurance firms in Kenya. A census survey was carried out on all the 43 licensed commercial banks and 45 insurance firms in Kenya. Out of the 88 firms that were targeted, 54 responded, constituting a response rate of 61%. The hypothesis was tested using simple linear regression analysis. Descriptive statistics were computed for organizational data and the main characteristics of the study variables. Data was presented in form of tables. The findings revealed that the influence of quality of decisions on non-financial measures of firm performance was statistically significant. The evidence however, did not show any statistical significance in the influence of quality of decisions on financial performance indicators i.e. return on assets and return on equity.  This study contributes to understanding the link between quality of decisions and firm performance. This implies that if organizations build their human capital, the decision quality will improve, which in turn translates into improved firm performance.  This is because employees with the relevant knowledge, skills and competencies would contribute to high quality decisions and consequently increase an organization’s competitiveness.

Keywords: Quality of Decisions, Firm Performance, Commercial Banks, Insurance Firms, Kenya

DOI: 10.7176/EJBM/18-7-01

Publication date: July 30^th 2026