Influence of Local Revenue Management on Financial Distress in Selected County Governments, Kenya

Abstract

The county governments of Kenya have recently encountered difficulties in settling their liability obligations to employees, suppliers, and creditors. Counties ought to act as economic and social transformational tools for the Country's residents, but this is not the case. County governments deliver services to the residents through their own revenue and equitable transfers from the national government. As such, revenue collection and utilization is a vital aspect of service delivery. However, County Governments have continuously failed to meet revenue targets, and some cannot account for the revenue expenditures. This explains their inability to settle the debt and other liabilities as they come due for payment. Therefore, it was necessary to examine the influence of local revenue management on financial distress in County Governments of Kenya. The study was further guided by wrecker's theory of financial distress. The study applied a descriptive survey design to obtain in-depth information from the auditors and accountants from Nairobi, Nakuru, Kakamega, Meru, and Kilifi County Governments. A stratified random sampling technique was applied to obtain a sample of 103 from 212 auditors and accountants. Structured questionnaires were used to collect data that was analysed through descriptive and inferential statistics with the aid of statistical packages for social sciences (SPSS). Study findings were presented by tables. Descriptive and inferential results indicated that revenue management influenced financial distress. The correlation coefficient (R=.613; p=.000) indicated that the relationship between local revenue management and financial distress was positive and statistically significant.The beta coefficient (β=.578; p˂0.01) was significant at 99% confidence level implying that local revenue management influenced financial distress in the county governments of Kenya.The research work will guide departments of finance in National and County Governments on how to effectively utilize financial resources, manage debts, and other liabilities. Corporate organizations will find it important in formulating strategies aimed at combating financial distress in their organizations.

Keywords: Local Revenue Management, Financial Distress, County Governments

DOI: 10.7176/RJFA/11-12-05

Publication date:June 30th 2020