REVENUE STRUCTURE AND OPERATIONAL EFFICIENCY OF COMMERCIAL PARASTATALS IN KENYA

Abstract

Commercial parastatals in Kenya play a pivotal role in advancing socioeconomic development by providing essential services such as energy, water, and transportation. Despite this mandate, many parastatals continue to grapple with persistent inefficiencies. The general objective of the study was to assess the effect of revenue structure on the operational efficiency of commercial parastatals in Kenya. The specific objectives were to examine the effect of service fees, and investment revenues on the operational efficiency of commercial parastatals in Kenya. The study was guided by cost recovery and firm theory. The study utilized the longitudinal research design that involved repeated observations of the same variables over an extended period. The population of commercial parastatals in Kenya was 43 as of December 2024, and thus, a census study was conducted. Secondary data for the period between 2020 and 2024 was utilized to collect financial information from KNBS, Kenya National Auditors Reports, and the GOK website. Data were gathered from secondary sources with the aid of a secondary data collection sheet and analyzed using descriptive and inferential statistics. The descriptive statistical tools included frequencies, percentages, means, variances, and standard deviations. Inferential statistical tools included Pearson’s product-moment correlation and panel regression analysis. A diagnostic test was conducted to test the assumptions of the regression model and panel regression for inferential analysis. Panel regression results indicated that revenue structure has a significant positive effect on the operational efficiency of commercial parastatals in Kenya. Specifically, service fee reported a positive and significant effect (β = 0.2318, p = 0.0000), investment revenue recorded a positive and significant effect (β = 0.1893, p = 0.0000) on the operational efficiency of commercial parastatals in Kenya. The study recommended policymakers should introduce performance-based funding frameworks to ensure that government financial support encourages operational efficiency and accountability. Furthermore, clear investment governance guidelines should be established to ensure that investment activities contribute to institutional sustainability and operational improvement.

Key Words: Revenue Structure, Operational Efficiency, Commercial Parastatals in Kenya, Service Fees, Investment Revenues