Relationship between budgeting process and financial performance of tea processing factories in Kericho and Bomet counties, Kenya.

Abstract

The tea sub-sector plays an important role in the economy of the country through employment to many Kenyans both directly and indirectly and contributes over 26 percent of the total foreign exchange earnings. Globally, Kenya is an important player in the tea industry as it sells the tea produced locally to the world market through Kenya tea development agency (KTDA) managed factories. Nevertheless, KTDA factories have had many problems ranging from the high manufacturing costs and other operating costs together with the declining global tea prices due to oversupply of tea to the world market and this results to low returns to the farmers. To curb the ever-increasing huge costs the tea factories, need to adopt a tight budgeting process to ensure an optimal allocation of resources for good performance and hence better returns to the farmers. Therefore, the purpose of the research was to establish the relationship between budgeting process (independent variable) and financial performance (dependent variable) of tea processing factories. Specifically, the research explored the budgeting process of the KTDA tea factories within Kericho and Bomet Counties and it was based on budgeting process variables (planning, participative budgeting, monitoring and control) and its relationship with the financial performance of the tea factories. The theories that underpinned the study were forecasting and budgeting theory, control and responsibility accounting theory, budgeting control theory and the agency theory. The study employed correlational research design as it enabled establishment of relationship between variables. The census survey method was appropriate as the sample size was small. The Statistical Package for Social Sciences (SPSS) version 26 was used for analyzing data using both descriptive and inferential statistics. The study targeted all the KTDA parent tea factories in Kericho and Bomet counties with a sample of 96 respondents drawn from 7 factories and the response rate was 81.25% The study found that 52.1% of variations in financial performance was predicted by the independent variables (R 2 =0.521; p<0.05). In conclusion, there was positive relationship between budgeting process variables (planning, monitoring and control and participative budgeting) and financial performance and as indicated by b=0.299 (p<0.05), b=0.281 (p<0.05) and b=0.357 (p<0.05) respectively and hence null hypothesis was rejected. It was therefore recommended that tea factories should adopt tight budgeting and budgetary control to improve on their performance. The research findings may be used by policy makers in emphasizing the importance of budgetary control on companies’ performances. Equally, the findings may serve as a basis for further research in similar field.