Relationship Between Stakeholder Engagement and Financial Performance of State-owned Commercial Enterprises in Kenya

Abstract

This study aimed to establish how stakeholder engagement, as one of the corporate governance practices, influences the financial performance of state-owned commercial enterprises (SOCEs) in Kenya. Stakeholder theory underpinned the study. The study adopted an explanatory research design and targeted 476 board members and 379 corporate executives from 46 SOCEs in Kenya out of which 153 board members and 142 corporate executives identified using a random sampling technique were sampled. Primary data was collected using questionnaires whereas the Office of the Auditor General’s reports and financial statements of SOCEs from July 2014 to June 2023 provided secondary data. This period was chosen since the Government of Kenya enacted the ‘Mwongozo’ in January 2015. Data were analyzed using descriptive statistics and hypothesis was tested using covariance-based structural equation modeling with the aid of Analysis of Moment Structures software. Study findings showed that the influence of stakeholder engagement (estimate = 0.504, critical ratio = 5.689, p < 0.001) on the financial performance of Kenyan SOCEs was positive and statistically significant and recommended that SOCEs should set up reporting systems that enable stakeholders to audit, assess and monitor SOCEs’ financial performance; and develop clear policies on managing stakeholder relationships, particularly on their expectations, rights and obligations.