Retained Earnings and Financial Performance of Commercial State Corporations in Kenya

Annet Grace Wanyama, Dr. Tumaini Mutugi

Abstract


Kenyan commercial state corporations have seen a decline in their profitability as indicated by their return on assets. As a result, different commercial state enterprises have been funding their operations through retained earnings, debt, and equity. However, despite receiving funding from these sources, Kenyan commercial state enterprises have been underperforming as seen by declining profitability and losses over the past five years. This study, therefore, sought to examine the effect of retained earnings on the financial performance of commercial state corporations in Kenya for the period between 2013 and 2022. The study was anchored on the agency theory. The target population was 26 commercial state corporations distributed in different parts of Kenya. Given the small size of the target population, the study employed a census approach and hence the whole population was included in the study. This research used secondary panel data. Secondary data on total assets, return on assets, and retained earnings was collected from the Office of Auditor General's website and individual companies' annual reports. Inferential and descriptive statistics were utilized in data analysis, and STATA version 14 was used for all statistical analysis. Descriptive statistics included frequency distributions, percentages, means, variances and standard deviation. On the other hand, panel regression analysis was used to perform inferential statistics. The results of the study were presented in tables and figures such as line graphs. The study established that retained earnings, measured in terms of the ratio of retained earnings to net income, have a positive and significant effect on the financial performance of commercial state corporations in Kenya. The study recommends that commercial state corporations retain more profits, implement cost management strategies, and reinvest retained earnings into strategic growth initiatives to enhance financial performance through increased returns on assets.

Keywords: Retained Earnings, Financial Performance, Financial Structure


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References


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