Governance, Internal Audit, Financial Reporting and Performance of National Government Constituencies Development Funds in Kenya
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GOVERNANCE, INTERNAL AUDIT, FINANCIAL REPORTING AND PERFORMANCE OF NATIONAL GOVERNMENT CONSTITUENCIES DEVELOPMENT FUNDS IN KENYA KEYA CHARLES THOMAS A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF THE DEGREE OF DOCTOR OF PHILOSOPHY IN BUSINESS ADMINISTRATION, SCHOOL OF BUSINESS, UNIVERSITY OF NAIROBI DECEMBER 2019 DECLARATION This thesis is my original work and has not been presented for a degree in any other university for purposes of examination. Signed …………………………………. Date:……………………………. KEYA CHARLES THOMAS D80/ 72746 / 2012 This thesis has been presented for examination with our approval as the candidate‟s University supervisors. Signed …………………………………… Date ………………………………. PROF. JOSIAH ADUDA Department of Finance and Accounting, School of Business, University of Nairobi, Kenya. Signed …………………………………… Date ………………………………. DR. WINNIE NYAMUTE Department of Finance and Accounting, School of Business, University of Nairobi, Kenya. Signed …………………………… Date:……………………….. PROF. GANESH POKHARIYAL Department of Applied and Industrial Mathematics, School of Mathematics, University of Nairobi, Kenya. ii COPYRIGHT All rights reserved. No part of this thesis may be reproduced either in part or whole without prior written permission from the author or the University of Nairobi except in the case of brief quotations embodied in review articles and research papers. Making copies of any part of this thesis for any purpose other than personal use is a violation of the Kenyan and international Copyright laws. iii DEDICATION This study is dedicated to all lovers as well as seekers of knowledge and wisdom and the sincere hardworking Kenyans who have been made the wretched of the earth by the landlords of poverty. iv ACKNOWLEDGEMENT Thanks to the God for His blessing He has poured unto me as I did my studies. I do appreciate the immense work, sacrifice, challenges and advice from several people without whom this research thesis wouldn‟t have seen the light of the day. Although it is not possible to name all of them, first my sincere appreciation is expressed to my supervisors Prof. Aduda, Dr. Nyamute, Dr. Sifunjo, Prof. Pokhariyal and doctoral committee discussants in particular Prof. Martin Ogutu and Prof. Njihiah for their objective criticisms and guidance through the entire period. I also thank the management, administration staff at the School of Business, University of Nairobi. Thanks to NG- CDFs officials in all the constituencies in Kenya who participated in the study. I did benefit a lot from librarians at University of Nairobi particularly Jomo Kenyatta Memorial Library with special reference to Regina Mutonga. I appreciate the following persons who ensured that type setting was properly done; Cecilia Wanjiku, Jane Muturi, Shiro Mwaura. Winnie Muriithi and Eunice Mutheu Munyao. I am grateful to Eunice Wambui Maina for proof reading this thesis. A hearty round of applause also goes to NW and JA for data analysis. I salute all my fellow PhD students, Nicodemus Mokaya, Macharia Munene, Dorothy Ssendagire, Rose Jamhuri, Perminus Nyaga, Robert Bosire, Munyao and others for their teamwork in our studies. Finally, I do thank my family for their support in all dimensions. May God bless you abundantly. v TABLE OF CONTENTS DECLARATION.......................................................................................................... ii COPYRIGHT ............................................................................................................. iii DEDICATION............................................................................................................. iv ACKNOWLEDGEMENT ........................................................................................... v LIST OF TABLES ...................................................................................................... xi LIST OF FIGURES ................................................................................................. xiii ABSTRACT ............................................................................................................... xiv LIST OF ACRONYMS ............................................................................................. xv CHAPTER ONE:INTRODUCTION ......................................................................... 1 1.1 Background .............................................................................................................. 1 1.1.1 Governance........................................................................................................ 4 1.1.2 Internal Audit .................................................................................................... 8 1.1.3 Financial Reporting ......................................................................................... 11 1.1.4 Organizational Performance ............................................................................ 15 1.1.5 National Government- Constituencies Development Fund (NG-CDF) in Kenya .............................................................................................................. 20 1.2 Research Problem .................................................................................................. 23 1.3 Research Objectives ............................................................................................... 25 1.4 Value of the Study ................................................................................................. 26 1.5 Organization of the Thesis ..................................................................................... 30 CHAPTER TWO: LITERATURE REVIEW ......................................................... 31 2.1 Introduction ............................................................................................................ 31 2.2 Theoretical Foundation of the Study...................................................................... 31 2.2.1 Agency Theory ................................................................................................ 32 2.2.2 Stewardship Theory......................................................................................... 35 2.2.3 Stakeholders Theory ........................................................................................ 38 2.2.4 Legitimacy Theory .......................................................................................... 41 2.2.5 Results Based Management Theory ................................................................ 43 2.3 Empirical Literature Review .................................................................................. 44 2.3.1 Governance and Organizational Performance ................................................. 44 2.3.2 Governance, Internal Audit and Organizational Performance ........................ 47 2.3.3 Governance, Financial Reporting and Organizational Performance ............... 50 vi 2.3.4 Governance, Internal Audit, Financial Reporting and Organizational Performance ..................................................................................................... 54 2.4 Summary of the Knowledge and Research Gaps ................................................... 58 2.5 Conceptual Framework .......................................................................................... 65 2.6 Research Hypotheses ............................................................................................. 67 2.7 Chapter Summary .................................................................................................. 68 CHAPTER THREE:RESEARCH METHODOLOGY ......................................... 69 3.1 Introduction ............................................................................................................ 69 3.2 Research Philosophy .............................................................................................. 69 3.3 Research Design..................................................................................................... 71 3.4 Population of the Study .......................................................................................... 73 3.5 Data and Data Collection Instruments ................................................................... 74 3.6 Reliability and Validity of Instruments.................................................................. 76 3.6.1 Reliability ........................................................................................................ 76 3.6.2 Validity ............................................................................................................ 77 3.7 Data Analysis ......................................................................................................... 78 3.8 Preliminary Data Analysis Methods ...................................................................... 81 3.9 Operationalization of Research Variables ............................................................. 86 3.9.1 Operationalization of Governance .................................................................. 86 3.9.2 Operationalization of Internal Audit ............................................................... 87 3.9.3 Operationalization of Financial Reporting ...................................................... 89 3.9.4 Operationalization of Performance of NG-CDFs in Kenya ............................ 89 3.10 Diagnostics Tests ................................................................................................. 92 3.10.1 Tests of Assumption of Regression Analysis ...............................................