Risk Governance and Quality of Financial Reporting Among Commercial State-Owned Entities in Kenya

Abstract

The reliability of financial reports underpins accountability and service delivery in State-Owned Commercial Entities (SOCEs), yet weak board-level oversight, political interference, and recurrent audit qualifications continue to undermine credibility in Kenya. This paper reports one component of a larger doctoral study on Enterprise Risk Management (ERM) and financial reporting quality; it examines the effect of risk governance, the first of the four ERM dimensions investigated in that study, on the quality of financial reporting among commercial State-Owned Entities in Kenya. Risk governance is examined on its own because it is the structural layer within which the remaining dimensions operate. The study was anchored on Agency Theory and adopted an explanatory research design within a positivist research philosophy. A multi-stage probability sampling procedure was used: commercial SOCEs were first sampled as clusters, respondents within the sampled entities were then stratified by professional category, and participants were selected within each stratum by simple random sampling. Applying the Yamane (1967) formula to a target population of 420 finance, audit, risk, and legal personnel yielded a sample of 205, of whom 160 returned complete and usable questionnaires, a response rate of 78.0%. Content validity was established through expert review, and reliability was assessed using Cronbach’s Alpha, with the Risk Governance construct achieving a coefficient of 0.836 and the Financial Reporting Quality construct. Both constructs were measured perceptually on a five-point Likert scale. Data were analysed using descriptive statistics, Pearson correlation, and simple linear regression in SPSS Version 27. Risk governance had a positive and statistically significant association with the quality of financial reporting (B = 0.668, 95% CI [0.571, 0.765], R² = 0.540, F(1, 158) = 185.15, t = 13.607, p < .001, Cohen’s f² = 1.17), leading to rejection of the null hypothesis. Risk governance was also positively and significantly correlated with financial reporting quality (r = 0.735, 95% CI [0.654, 0.799], p < .01). The study concludes that risk governance is strongly associated with financial reporting quality among commercial SOCEs in Kenya, with board-level risk oversight structures, risk mapping, and independent assurance mechanisms being the practices most closely linked to reporting quality. The study recommends that the National Treasury and the State Corporations Advisory Committee prioritise strengthening board-level risk governance structures across all commercial SOCEs, including regular review of risk governance frameworks and clearer independent assurance mechanisms through internal audit and external review. The findings are useful to policymakers, SOCE boards and management, oversight institutions, and scholars seeking to strengthen public sector accountability and risk management practice in Kenya.