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April|2014 www.ijmst.com Vol.2 Issue 4
April | 2014
ISSN 2320-8848 (Online)
ISSN 2321-0362 (Print)
International Journal for Management Science and
Technology (IJMST)
Management Science and Technology
Journal
International Journal for Management Science and Technology (IJMST) Vol. 2; Issue 4
ISSN: 2320-8848(O.)/2321-0362(P.) Page 2 April, 2014
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International Journal for Management Science and Technology (IJMST) Vol. 2; Issue 4
ISSN: 2320-8848(O.)/2321-0362(P.) Page 3 April, 2014
Persons Associated Editorial Board
Mrs. Vaijayanti Mala (India) PhD (Cont.), D.ed, B.ed, M.Com, BCom Dr. IBEM, Eziyi Offia (Nigeria)
PhD (Architecture), Full Registration by ARCON, MSC
(Architecture), BSC (Architecture)
Dr. K .K. Patra (India)
FDPM-IIMA, PhD, PGDM, PGDFM, MBA, LL.B, M.Com.
Muhammad Usman (Islamabad) Doctorate BA - Global Business and Leadership (Continued), M.Sc (Software Engineering), B.Sc (Computer Science) Dr. K. Sudarsan (India) PhD, M.Com, MBA, BA Sandeep Aggarwal (India) MBA (Marketing & Finance), BBA Muqeem Ahmed (India) PhD (Computer Science), MCA, BSc Dr. Muhammad Reza Iravani (Iran) Ph.D. (Social work), M.A. (Sociology), B.A. (Social Sciences) Dr. Muhammad Sabbir Rahman (Malaysia) Ph.D (Business Administration), MBA (Marketing & Human Resource Management), BBA (Marketing) Biswa Mohana Jena (India) PHD (Cont.), M.PHIL, M.COM, CA (Inter), UGC NET, PGDCA
Advisory Body Ms. Rachna Ingle (India) PhD (Microbiology) (Cont.), B.Ed, MSc (Microbiology), BSc (Microbiology) Er. Rajesh Ojha, Muscat (Oman) Bachlor Of Engineering (Computer Science)
Mahesh Kumar Maheshwari
BA. LLB (High Court Advocate)
Reviewers Ms. Mamta (India) PhD (Cont.), MBA, BCom Dr. Asiamah Yeboah (Ghana) PhD (Marketing), Professional Postgraduate Diploma in Marketing, MBA-Marketing, Bachelor of Education (Social Studies). Dr. Alexander Ayogyam (Ghana) PhD (Marketing), M.A Industrial Management, B.sc (Mathematics) Mr. W. M. R. B. Weerasooriya (Sri-Lanka) PhD (Reading) (Management and Science University– MSU Malaysia), M.Com (University of Kelaniya), CCSD, MAAT, LICA, SP (RUSL), B.Sc (Business Management) Mr. MD. Zakir Hosen (Bangladesh) MBA & BBA (Accounting & Information Systems) Mr. Oteri Malack Omae (Kenya) PhD (cont.), MSc (Electrical Engineering), BSc (Electrical & Electronic Engineering) Dr. P. M. B. Jayathilake (Sri Lanka) PhD, M.Com, B.Sc (Business Management) Dr. Jaidev S. Tomar (India) PhD, Master of Industrial Relations & Personnel Management, M.A Dr. Joanna Zator-Peljan (Poland) PhD (Literary studies), M.A. (Intercultural communication), B.A. (Methodology of teaching)from Adam Mickiewicz University, Poznan, Poland
International Journal for Management Science and Technology (IJMST) Vol. 2; Issue 4
ISSN: 2320-8848(O.)/2321-0362(P.) Page 4 April, 2014
INFLUENCE OF TRAINING ON EMPLOYEE RETENTION IN
PUBLIC UNIVERSITIES IN KENYA- CASE OF THE MASINDE
MULIRO UNIVERSITY OF SCIENCE AND TECHNOLOGY-
KENYA Immerqulate. A. Ayodo, Prof. G.S. Namusonge
5
EFFECTIVENESS OF CUSTOMER SERVICE DELIVERY ON
THE PERFORMANCE OF RETAIL ORGANIZATIONS: A CASE
STUDY OF NAKUMATT SUPERMARKET IN KAKAMEGA
TOWN Ms. Patriciah Kamene Wambua, Dr. Kimani Chege, Dr. Douglas Musiega, Mr. Kevin
Kilonzo Mutua
25
AGE OF THE FIRM AS A FACTOR INFLUENCING CAPITAL
STRUCTURE OF INSURANCE COMPANIES IN KENYA Cheruiyot Ng’etich Joseph Sawe, Dr. Ondiek Alala, Dr. Douglas Musiega, Gerishom Wafula
Manase
52
DETERMINANTS OF REVENUE COLLECTION
MAXIMIZATION AMONG COUNTY GOVERNMENTS: A CASE
OF KAKAMEGA COUNTY Stephen Wilberforce Amanya Makokha , Dr. Ondiek Alala, Dr. Douglas Musiega, Gerishom
Wafula Manase
73
TABLE OF CONTENT
International Journal for Management Science and Technology (IJMST) Vol. 2; Issue 4
ISSN: 2320-8848(O.)/2321-0362(P.) Page 5 April, 2014
INFLUENCE OF TRAINING ON EMPLOYEE RETENTION IN PUBLIC
UNIVERSITIES IN KENYA- CASE OF THE MASINDE MULIRO
UNIVERSITY OF SCIENCE AND TECHNOLOGY-KENYA
Abstract
The objective of this study will be to establish the influence of training and employee
retention in public universities; the influence of training and job satisfaction in public
universities, the influence of job satisfaction and employee retention in public universities
and the influence of job satisfaction on the relationship between training and employee
retention in public universities. The findings of this study will assist public universities to
formulate training policies that can assist them not only in developing top talents, but also
retaining them as they assist staffs in moving along their career paths. This study was limited
to Masinde Muliro University of Science and Technology Main Campus in Kakamega.
Focused only on university teaching and research staff. Literature review highlighted several
areas such as theories of training, theories and measures of employee retention as well as the
relationship between training and employee retention. This study only targeted the most
informed respondents in the relevant areas. The conceptual framework was premised on the
fact that there was an influence of training on employee retention. In this study, the
moderating variable was job satisfaction. A descriptive census survey design was applied to
assess the extent to which training influenced employee retention in public universities in
Kenya. The population of study was 60. Primary data was gathered using a self-administered
semi-structured questionnaire. Construct and content validity was applied in this study. A
pilot study was carried out in one school, one faculty and two departments. A re-test was
conducted on the same subjects in order to measure the consistency in the results. These
Immerqulate. A. Ayodo
Main author
MSC- Human Resource Management
Jomo Kenyatta University of Agriculture
and Technology,
Nairobi, Kenya
Prof. G.S. Namusonge
Department of Entrepreneurship and
Procurement Jomo Kenyatta University of Agriculture
and Technology,
Nairobi, Kenya
Dr. Kennedy Ayodo
Department of physics
Kibabii University College,
Kenya
Mr. Vincent Maluti
Phd- Student
Jomo Kenyatta University of Agriculture
and Technology,
Nairobi, Kenya
International Journal for Management Science and Technology (IJMST) Vol. 2; Issue 4
ISSN: 2320-8848(O.)/2321-0362(P.) Page 6 April, 2014
subjects were omitted in the final study. The data was analyzed using per cent ages using the
Statistical Package for Social Sciences (SPSS) software. The results were presented in tables.
The overall results indicated that there was insignificant influence of training on employee
retention.
Keywords: Influence of Training on Employee Retention in Public Universities in
Kenya
1.0 INTRODUCTION
The role of Universities in the provision and development of manpower required for the
social economic and technological advancement of any nation cannot be over- emphasized.
By their unique nature universities are expected to be a repository of the most specialized and
skilled intellectuals. They serve as storehouses of knowledge for nurturing the manpower
needs of the nation and hence for satisfying the aspirations of the people for a good and
humane society. Central to the realization of University goals and objective are the academic
staff whose roles are crucial and their number, quality and their effectiveness makes the
difference in university education production function and to the wider society (Mwadiani,
2002). Pienaar (2008) strongly argues that the academic profession is fundamental to the
functioning of any university. Without well qualified and committed academic staff, no
academic institution can really ensure sustainability and quality over the long haul. Higher
education institutions are therefore more dependent on the intellectual and creative abilities
and commitment of the academic staff than most other organisations. This therefore makes it
critically important to retain this cadre of staff.
1.1 Background
In global context, employee retention is considered immensely important. Most of the
companies are judged on the basis of their turnover rate. The rate of turnover affects the
performance of an organization. Low turnover ensures that organization is retaining their
competent employees by providing them superior environment, which increases the
performance of individual employee (Waleed Hassan et.al 2013)
The current dispensation of global financial meltdown has witnessed many organizations
ranging from multi-national enterprises (MNEs) to small and medium enterprises (SMEs)
International Journal for Management Science and Technology (IJMST) Vol. 2; Issue 4
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finding it very difficult to remain afloat with their initial number of employees. Many have
resorted to cost-cutting measures like retrenchment, downsizing, rightsizing, and
restructuring, merging or even out-sourcing non-core operations in desperate moves to
remain in business, build profits and still be effective in their ventures (Rance, 2007). This
has inevitably prompted managers to maximize on their strategic resources by carefully
isolating for retention only the best-trained, experienced, disciplined, productive and effective
employees from those with less attributes and behaviours in order to sustain a competitive
advantage and differentiate themselves from their competitors. Robert Bazzani a partner and
Australia national head of Mergers and Acquisitions at KPMG says, when faced with such
challenges, it reaches a point in time when hard decisions on who to retain and whom to drop
must be made in order to propel the organization to greater success (Rance, 2007).
In this kind of business environment, it is clear that the future of any organization will largely
depend on its human capital. It is rightly argued that the most valuable resources of any
organization are its human resources as they contribute their knowledge, skills and
capabilities towards organizational goal attainment. Baruch (2004) is of the opinion that
changes at the organizational level have elevated the importance of managing people at work.
Therefore, providing them with a training that is long term and stable leads to a win-win
situation for both the organization and its employees.
Despite the success of a firm being subject to an interplay of several other factors, those
organizations that consider their employees the most valuable asset have managed not only to
be financially solvent (Shelton, 2001), but relevant, stable, progressive and they display a
high corporate image (Saks & Haccoun, 2007). To sustain the availability of the right quality
and quantity of this human resource, there must be a deliberate effort, ability and resource
outlay to maintain and continuously improve this human capital. This can be achieved
through employee training, while at the same time up-grading the working environment that
reinforces their learning and growth, and not just a place where they perform their duties
(Callahan, 2000). Professor John Kotter of Harvard Business School [HBS] observes that
human resource must encompass development of good leaders able to identify good deals
that can be achieved through a clear vision (Rance, 2007).
Whereas extensive training opportunities are priority facilities dynamic organizations are
using to attract and retain employees, it is apparent that those institutions with little regard for
International Journal for Management Science and Technology (IJMST) Vol. 2; Issue 4
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training their staff will be adversely placed in attracting and retaining their manpower (Saks
& Haccoun, 2007). Delta Hotels and Resorts based in Canada as observed by Saks and
Haccoun (2007) has one of the highest employee retention rates in the hospitality industry at
89 percent owing to its elaborate and guaranteed on-going training for its entire staff. Shelton
(2001) supports this view that in order to succeed while at the same time retaining employees,
firms need to invest in on-going employee development. Dictated by an ever changing world
economy, organizations will need to be pragmatic, sensitive and responsive to emerging
demands of the global market by developing human capital that is flexible enough to embrace
changing trends (Shelton, 2001), relevant to their operating environment. This is premised on
the notion that satisfied employees lead to satisfied customers, who in turn are a financial
gain to organizations (Logan, 2000).
However, Joy-Matthews, Meggison and Surtees (2007) argue that there is a misconception
that training will obviously translate into improved performance or change in attitudes and
behaviour. To the contrary, a research conducted in Australia by Sydney Consultancy Talent
Edge based on concerns among more than 40 Change Management consultancies and Human
Resource Thought leaders indicated that organizations with high quality development
programs and opportunities had superior results, motivated and retained its top performers
(HBS, 2002).
These divergent views on the effect of employee training on employee retention render an
interesting basis for this study, whose outcome will try to assist managers in applying the
training function in harnessing quality employee retention efforts. This study will also help to
show the role training, job satisfaction and employee commitment play a role to determine
employee retention.
1.2 Statement of the problem
The growing need for university education and has exerted a lot of pressure on universities to
craft strategies of retaining the talents they have. The expansion of universities has
exacerbated matters as upcoming universities and university Colleges targets trained
academic staff in the established ones. This has caused shortage of staffs as some of the
public universities have experienced mass exodus of its best talents and thus raising questions
on whether it is worthwhile to train existing staffs only to lose them to rivals. The
universities who train their employees stand a chance of retaining them compared to those
International Journal for Management Science and Technology (IJMST) Vol. 2; Issue 4
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ones which does not train their staff, it is apparent that those institutions with little regard for
training their staff will be adversely placed in attracting and retaining their manpower (Saks
& Haccoun, 2007). Universities must view themselves as laboratories for innovation and
renovation of the educational system and subsequently the society (CHE, 2008). In a world
where socio-economic development is becoming more knowledge intensive, the role of
universities in imparting higher education is crucial. Lecturers, being the generators and
disseminators of such knowledge are expected to continuously update their knowledge and
skills through undertaking training programmes and research (Ngovoloi, 2006; Kadenyi et al
2009).
1.3 Objective of the study
a) To examine the effect of training and employee retention in public universities.
1.4 Research question
1) What are the effects of training on employee retention in public universities?
1.5 Justification and significance of the study
The findings of this study will assist public universities to formulate training policies that can
assist them not only in developing top talents, but also retaining them as they assist staffs in
moving along their career paths.
1.6 Scope of the Study
This study was limited to Masinde Muliro University of Science and Technology Main
Campus in Kakamega for the period covering the last five years. Focus was only on the
university teaching and research staff. This study targeted only the most informed
respondents in the areas of interest. Nevertheless, the study was only carried out once,
meaning that only past records could be accessed to give a picture of the trends of
employment, deployment and how employees were retained.
1.0 REVIEW OF LITERATURE
Figure 2.1: Conceptual Framework
International Journal for Management Science and Technology (IJMST) Vol. 2; Issue 4
ISSN: 2320-8848(O.)/2321-0362(P.) Page 10 April, 2014
A conceptual framework consists of independent and dependent variable. An independent
variable is the presumed cause of change in the dependent variable. It is caused or influenced
by independence variables.
Dependent variable(s) is the variable the researcher wishes to explain. In this study it is
employee retention, This study considers Training to be the variable that influence employee
retention in public Universities.
INDEPENDENT VARIABLE DEPENDENT VARIABLE
MODERATING VARIABLE
2.1.1 Review of Variables
The conceptual framework is premised on the fact that there is a correlation between the
training of employees and those who are retained. In this study, training will be the
independent variable while the dependent variable will be employee retention, while the
moderating variable will be job satisfaction.
2.2 Training
Training means equipping new recruits or current employees with the requisite skills in the
short-run (Dessler, 2008) which includes knowledge and abilities (Saks & Haccoun, 2007) to
not only perform their jobs but also to improve performance in their current job.
Development on the other hand refers to the long-term impartation of skills, knowledge and
abilities geared towards career development (Saks & Haccoun, 2007) necessary to enable an
individual handle more challenging responsibilities.
However, Joy-Matthews et al (2007) argue that there have been inconsistencies in the
definition of training because the term “training” can still be used to describe learning that
takes many years to complete, and development can include learning experiences that have a
powerful effect but are over relatively quickly”.
The learning process is an inherent aspect in an individual. This innate characteristic allows
learning to take place, which is the intended outcome of training (Joy-Matthews et al, 2007).
Training Employee Retention
Job satisfaction
International Journal for Management Science and Technology (IJMST) Vol. 2; Issue 4
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Michael Brown, the Chief Financial Officer of Microsoft®, says that for an organization to
command the lead in today‟s business world, one need to declare their intellectual capital
obsolete before their competitors did so (Harris, 1996). However, it is important to motivate
individuals who have successfully learnt skills that are valuable if the organization is to
encourage the use of new learnt techniques and creation of a conducive operating
environment to continue performing competitively. Joy-Matthews et al further say that there
is a misconception that training will obviously translate into improved performance or change
in attitudes and behaviour. They have suggested a variety of challenges that are responsible
for behavioural change in a job holder not being achieved despite learning having taken
place. Among these factors are lack of capacity to transfer learnt skills to the specific job,
the new learning may be irrelevant to incumbent‟s job, and a hostile environment may inhibit
application of new ways of performing a task or outright refusal by the job holder to practice
his or her new capabilities. Kandula (2004) introduces another dimension to this field by
adding that trainability of an employee which includes aptitude to learn, physical health
status, academic credentials and age are most critical in facilitating employee development
training can therefore be classified as predominantly theoretical (cognitive approach) while
behavioral methods are essentially practical impartation of skills into a trainee.
2.3 Measurement of Employee Retention
A high turn-over of the very best employees have far reaching implications to any
organization‟s success. This implies that despite the concomitant limitations, there is a need
for collaborative efforts to retain the talented employees who incidentally are the most
probable to quit at any opportunity. This then provides a firm basis for checking the number
of deserting staffs.
There are credible reasons for staff retention, which include reduction in acquisition costs,
induction and training expenses, idle time visited on machines and equipment after staff
quitting, impact on customer satisfaction among other costs. Another reason is that leaving
employees are a lost resource, which the organization has spent a fortune to train and
develop. The arguments against employee retention are equally compelling: Leaving
employees give organizations room to inject new energy into the firm, the firm is able to
blend the existing ideas with new ones, which make the firm more versatile and strategic et
cetera. It then therefore follows that the surest way of retaining employees is to treat them in
International Journal for Management Science and Technology (IJMST) Vol. 2; Issue 4
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a better way than they hope to get from anywhere else in the job market for their current
quality of service.
It is noteworthy that for there to be any retention, hiring must precede it. Attraction which in
turn leads to employment is the other side of retention, meaning that strategies for each one
of them complement one another in HR functions. A good number of institutions must have
realised that it will be virtually impossible for them to retain quality staff if they have weak
recruitment and selection policies – which are responsible for the acquisition of requisite staff
with relevant skills, knowledge and experience.
There are four major factors that lead to turnover: Outside factors, functional turnover, push
factors and pull factors (Torrington et al, 2007). Outside factors can be attributed to incidents
where employees leave due to reasons that are unrelated to their job such as moving to join a
spouse. Functional turnover occurs when both employer and employee accept the decision to
quit as a result of under-performance or failure to cohere with the existing organization
cultural setup. Push factors result into unhealthy turnover and are attributable to
dissatisfaction with work or the firm while pull factors are those situations when competitors
lure another firm‟s employees.
Although the numbers of deserting employees to cause an operational setback will vary from
organization to organization depending on the industry, some fast foods firms are known to
record a turnover of as high as 300 per cent (Ritzer, 1996; Cappelli, 2000) which is
equivalent to only four months of an employee‟s stay, yet these firms are some of the most
successful on the global market. Conversely, a devastating impact is felt by others such as
professional service firms experiencing a mere 10 per cent of staff turnover. In another study
conducted on 870,000 employees in 1992 (Gregg and Wadsworth, 1999), it was found that 17
per cent of them had quit within the first quarter of the year while 42 per cent had left by the
end of the year as a result of unmet expectations.
Fundamental factors that tend to emphasize attraction strategies include employee branding;
where the reputation of the organization is built and modelled on a top-notch corporate
institution with a unique image that will attract potential employees (Armstrong, 2006).
Value proposition (Sears, 2003) or employer of choice (Armstrong, 2006., Martin &
Beaumont, 2003) where the aim is to portray the organization not only as a place where
people would wish to work but where they would like to stay and continue working. The
International Journal for Management Science and Technology (IJMST) Vol. 2; Issue 4
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effort involves packaging the firm as an employer of choice. Target recruitment and selection
(Armstrong, 2006) - where the organization targets only the right people for recruitment and
selection thereby eliminating unsuccessful employees and avoiding potential early defectors.
Armstrong (2006) and HBS (2002) concur that the following are reasons why employees will
stick to an organization; Pride in the organization; people prefer to work for well-managed
organizations with big and clear vision, skilled and resourceful leaders. Respected and
supportive supervisors: Fair compensation both tangible such as wages and benefits and
intangible such as opportunities to learn, grow and achieve: Affiliation; which gives people a
chance to work and interact with colleagues they respect and are comfortable with:
Meaningful work which is stimulating and satisfying by appealing to employees‟ deepest
interests: Leadership-“employees join companies and leave managers”.
Since it is difficult to control the effects of employee market dynamics, Cappelli (2000) calls
for a paradigm shift from the traditional HRM goals which emphasize the overall
minimization of employee turn-over and instead embrace a new goal which influences “who
leaves when”. Cappelli (2000) further says organizations should carry out risk assessment to
evaluate possible risk areas of quitting people, analyse reasons for leaving after looking at the
risk assessment and identify areas for action for instance: Act on irrational and unrealistic
reward systems, redesign jobs to be stimulating, satisfying and appealing, developing job
engagements where employees identify with success emanating from assignments and
projects. Since it is possible for people to switch their organizational allegiance more easily
as opposed to colleagues, it then follows that organizations should embark on building social
bonds among employees, strive to create a great environment by eliminating all unpleasant
elements in working environment: For example bad supervisors are not conducive for a
harmonious environment. Matching employee competencies to their task requirement through
selection and promotion, taking measures to improve the quality of life of employee by
balancing work and life through initiatives like flexible working time and giving people as
much autonomy as they can handle.
Although organizations may successfully achieve all the mentioned strategies, HBS, (2000)
however warns of complacency by managers as this success may be short-lived because it
provides a challenge of sustaining these star employees on board without attracting the
International Journal for Management Science and Technology (IJMST) Vol. 2; Issue 4
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attention of rival firms who would try to lure them with better working terms, if not using just
the same inducements that were used to attract them.
It is therefore no doubt that the role HR plays in enterprises provides the magnitude managers
should place on the need to appreciate the importance of employee retention. HBS (2002)
says what underlies the ever increasing importance of the intellectual capital, the cause and
effect relationship between employee tenure and job satisfaction and astronomical cost of
quitting employees are acquisition costs of HR, indirect costs and opportunity costs.
Acquisition costs comprise of recruitment, selection, placement, orientation and training of
replacements: Indirect costs include effect of leaving employees on morale, workload on the
remaining employees, customer satisfaction and whether customers will drift with quitting
employees. Employees will quit for a variety of reasons; change in organizational leadership,
dissonance with immediate superiors, exodus of friends, and role models will deny
employees affiliation, and unfavourable change of responsibility (HBS, 2002).
Whereas it would appear obvious that for an employee to leave an organization, they must be
quite certain why they are doing so, to the contrary, HBS (2002) states that people practically
quit for the all wrong reasons. These employees end up hopping from one organization to
another, repeating the same mistake each time because they really do not understand why
they are not satisfied with their jobs or what opportunities are open to them that they can
utilize to improve things in the firm. In fact middle level managers are singled out as the
group of employees who seem to find themselves in this endless vicious circle. It is not
uncommon to find people in their early career life frequently switching from one job to
another, only to move to another firm whenever there is an opportunity until they get a
satisfying job (Torrington et al, 2007). CIPD (2006) has noted that the most stable workforce
is the public service, whose turnover rate is 10 per cent to 11 per cent per annum.
Times of economic boom result into abundant job opportunities. This eventuality often
shrinks employees‟ tenure for the reason that employees can make a choice from a wide
spectrum of jobs available. On the other hand, recessions discourage staff turnover because
very few attractive vacancies become available (Torrington et al, 2007). In a study conducted
in the United Kingdom from 1975 – 1998 (Gregg & Wadsworth, 1999), although the general
workforce tenure remained fairly stable, that of men fell as many of them aged above 50
years took early retirement or redundancy packages while tenure rates among women with
International Journal for Management Science and Technology (IJMST) Vol. 2; Issue 4
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children increased. Torrington et al observe that this trend has persisted into the 21st century
with available statistics showing neither any increase nor reduction in job tenure.
Although Cappelli (2000) believes that it is difficult to stop the market forces of labour
because “you can‟t shield your people from attractive opportunities and aggressive
recruiters”, the ultimate objective of HR specialists is to always have the right number of
employees with the right experience. In trying to achieve this goal, it is inevitable for them to
comprehend the reasons behind peoples‟ resolve to stay in an organization. Among the
challenges are the demographics, which impact directly on the nature, style, magnitude and
frequency of turn-over. Early career employees, majority who are under 30 years will crave
for opportunities to advance their careers, a scenario that exposes them to the vulnerability of
changing jobs and employers frequently. Mid-career employees on the other hand mostly
between 31 years to 50 years of age will prefer some empowerment to manage their career
and derive satisfaction from their work while later career employees in their post-50 year‟s
age group value security.
2.0 RESEARCH METHODOLOGY
3.1 Research Design
A descriptive census survey design was applied to assess the extent to which training
influences employee retention in public universities in Kenya. Assessment of the influence of
these variables was achieved in a non-contrived setting where the research was done in a
natural environment without interfering with the normal operations of the subjects. Since data
was collected just once over a one month‟s period to address the research questions, across
sectional study was adopted (Thuo, 2010).
3.2 Target Population
The population of study was 60 and those 4 subjects who participated in the pilot survey were
eventually excluded from the final study.
3.3 Data Collection Methods, Sampling Techniques and Size
Primary data was gathered using a self-administered semi-structured questionnaire. The
questionnaire was sub-divided into 4 parts. Part A will capture the respondent‟s
demographics; Part B dealt with employee training, Part C covered employee retention while
Part D captured employee satisfaction. The questionnaire instrument was used because its
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convenience and cost effectiveness. Questionnaires was administered through the drop-and-
pick method and was filled in by key informants; to be collected after a fortnight.
3.4 Processing and Analysis
The data were analyzed using frequencies and per cent ages, using the Statistical Package for
Social Sciences (SPSS) version 20 software. The results were presented in tables. Before
processing the responses, all completed and received questionnaires were filtered to make
sure that they are complete and consistent across respondents. Descriptive statistics were used
to analyze the data.
3.0 RESEARCH FINDINGS AND DISCUSSION
4.1 Response Rate, Data Coding and Data Cleaning
Sixty respondents participated in this survey. The purpose was to capture information from
well-informed individuals who were holding managerial positions, capable of giving
adequate information that is relevant to the characteristics that are relevant to this study.
Forty questionnaires were successfully collected, representing a response rate of 67 per cent.
Coding was then done and data cleaning followed by checking and verifying whether
respondents had completely and consistently responded to the elements in the data collection
tool.
4.2 Employee Training
The results obtained from the study showed that on the dimension of whether training was
conducted frequently by the university (Table 4.4.1 below), 11 Doctor of Philosophy (PhD)
degree holders disagreed, 2 of them disagreed strongly whereas 11 agreed and 1 was not sure.
On the other hand, 7 Masters degree holders agreed, 1 of agreed strongly while 3 disagreed, 1
disagreeing strongly.
Table 4.2.1 Frequency of Training
Strongly
Disagree
Disagree Not
Sure
Agree Strongly
Agree
Total
Academic
Qualification
Bachelors Degree 0 0 0 1 0 1
Masters Degree 1 3 1 7 1 13
Doctor of Philosophy 2 11 1 11 1 26
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Total 3 14 2 19 2 40
Regarding the construct on who met the cost of staffs training (Table 4.4.2 below), 8 lecturers
agreed that staffs met their training costs, 1 agreed strongly while 3 were not sure while 1
disagreed. A similar trend was observed under senior lecturers where 8 agreed, 2 strongly
agreed and 2 disagree while 3 were not sure. Among associate professors, only one was not
sure while 5 agreed and 1 strongly agreeing. The 1 professor agreed while the other one
disagreed.
Table 4.2.2: Staffs Meet Cost of Training
Strongly
Disagree
Disagree Not
Sure
Agree Strongly
Agree
Total
Current
Position
Tutorial Fellow 1 0 0 0 0 1
Assistant Lecturer 0 1 0 1 0 2
Lecturer 0 1 3 8 1 13
Senior Lecturer 0 2 3 8 2 15
Associate Professor 0 0 1 5 1 7
Professor 0 1 0 1 0 2
Total 1 5 7 23 4 40
Asked on whether universities have sufficient funds to facilitate training for its staff members
(Table 4.2.3 below), 4 strongly disagreed, 4 disagreed while 5 were not sure. It also emerged
that 8 senior lecturers strongly disagreed; 4 of them disagreeing while 3 agreed. For associate
professors, 3 strongly disagreed; while 1 disagreed and 3 others agreed. One professor
disagreed while the other one was not sure.
Table 4.2.3: Sufficient Funds
Strongly
Disagree
Disagree Not
Sure
Agree Total
Current
Position
Tutorial Fellow 1 0 0 0 1
Assistant Lecturer 1 0 1 0 2
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Lecturer 4 4 5 0 13
Senior Lecturer 8 4 0 3 15
Associate Professor 3 1 0 3 7
Professor 0 1 1 0 2
Total 17 10 7 6 40
The overall results obtained on the frequency of staff training indicated that 47.5 per cent of
the respondents agreed that training frequently took place while 5 per cent strongly agreed.
Further, 25 per cent of the respondents strongly disagreed, and 37.5 disagreed that the
university did not have elaborate programmes. This could be explained by the 41 per cent
respondents who disagreed, 5.1 per cent who strongly disagreed and the 30.8 per cent who
were not sure that the university initiates training programmes (see Table 4.2.1 below). This
could be the reason why 57 per cent agreed and 10 per cent agreed that staff members met the
cost of their training.
Table 4.2.4: Responses on Staff Training
Strongly
Disagree Disagree Not Sure Agree
Strongly
Agree
Frequency of Training 7.5% 35.0% 5.0% 47.5% 5.0%
On the job Training 7.7% 17.9% 12.8% 53.8% 7.7%
Staffs Meet Cost of Training 2.5% 12.5% 17.5% 57.5% 10.0%
University Initiates Training Programmes 5.1% 41.0% 30.8% 20.5% 2.6%
Staffs Participate in Training Decisions 20.0% 27.5% 20.0% 27.5% 5.0%
Staffs Decline Training Opportunities 47.5% 40.0% 2.5% 7.5% 2.5%
Equal Training Opportunities 30.0% 32.5% 22.5% 12.5% 2.5%
Elaborate Training Programmes 25.0% 37.5% 27.5% 5.0% 5.0%
Moreover, 47.5 per cent and 40 per cent strongly disagreed and disagreed respectively that
staff members declined to take up training opportunities. This finding conforms to Maluti et
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al (2012) findings. However, 30 per cent strongly disagreed while 32.5 disagreed that the
university gave equal training opportunities to its staffs.
4.5 Employee Retention
Respondents‟ response on the construct on whether staffs quit, Table 4.5.1 demonstrates the
findings. Only 6 PhD degree holders and 4 Masters degree holders agreed while 1 Masters
degree holder and one Bachelors degree holder strongly agreed. However, 13 PhD degree
holders and 4 Masters degree holders disagreed; 7 PhD and 3 Masters degree holders
disagreeing strongly.
Table 4.3.1: Staffs Quit
Strongly
Disagree
Disagree Not
Sure
Agree Strongly
Agree
Total
Academic
Qualification
Bachelors Degree 0 0 0 0 1 1
Masters Degree 3 4 1 4 1 13
Doctor of Philosophy 7 13 0 6 0 26
Total 10 17 1 10 2 40
On the aspect of whether training makes staffs stay longer, 5 lecturers disagreed strongly, 6
disagreed; 9 senior lecturers disagreed, 1 of them strongly disagreed, while 4 associate
professors strongly disagreed and 1 disagreed whereas 1 professor was not sure, though 1
agreed (Table 4.5.2 below).
Table 4.3.2: Training Makes Staffs Stay Longer
Strongly
Disagree
Disagree Not
Sure
Agree Total
Current
Position
Tutorial Fellow 1 0 0 0 1
Assistant Lecturer 1 1 0 0 2
Lecturer 5 6 2 0 13
Senior Lecturer 1 9 3 2 15
Associate Professor 4 1 2 0 7
Professor 0 0 1 1 2
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Total 12 17 8 3 40
Overall finding on employee retention are contained in Table 4.5.3 below
Table 4.3.3: Responses on Employee Retention
Strongly
Disagree Disagree
Not
Sure Agree
Strongly
Agree
Staffs Quit 25.0% 42.5% 2.5% 25.0% 5.0%
Talented Staff Leave for other
Institutions 30.0% 50.0% 2.5% 15.0% 2.5%
Programmes to Retain Staffs 22.5% 47.5% 20.0% 10.0%
Female Exit More than Male 15.0% 25.0% 52.5% 5.0% 2.5%
Staffs Bonded 5.0% 12.5% 20.0% 47.5% 15.0%
Training Makes Staffs Stay Longer 30.0% 42.5% 20.0% 7.5%
On the question whether staff members quit, 25 per cent strongly disagreed and 42 per cent
disagreed (Table 4.5.1above). Only 25 per cent agreed and a mere 5 per cent strongly agreed
while 2.5 per cent were not sure. It emerged that 47.5 per cent disagreed, 22.5 strongly
disagree while 20 per cent were not sure whether the university did not have programmes to
retain staff members. Despite, lack of programmes to retain staffs, 50 per cent of the
respondents disagreed and another 30 per cent strongly disagreed that talented staff members
left the University for other Institutions.
Conversely, 47.5 per cent agreed and another 15 per cent strongly agreed that staff members
are bonded where the university has sponsored the training. However, on the critical question
on whether training makes staff members to stay with the organization longer, 42.5 per cent
disagreed, 30 per cent strongly disagreed while 20 per cent were not sure. This could be
explained by the fact that majority of the respondents who; 57.5 per cent agreed and 10 per
cent strongly agreed that staff met the cost of their training (Table 4.4.1 above).
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5.0 CONCLUSIONS AND RECOMMENDATIONS
From the findings of the study, it was established that training has no influence on employee
retention especially where the employees have to meet the cost of training. It was on this
account that that 30 per cent of the respondents strongly disagreed and 42.5 per cent
disagreed that training makes staffs stay longer. From the findings, it emerged that the
university lacked elaborate training programmes. Furthermore, the university lacked
programmes aimed at retaining staff members as 22.5 per cent agreed and another 47.5 per
cent disagreed. These findings have fulfilled the first objective.
5.1 Recommendations
Owing to the findings of this study, the following recommendations are made in order to
make the university more competitive
1. First, the university should initiate elaborate training programmes aimed at benefiting
its employees in order not only to motivate them, but for it to be able to continue
attracting and retain the best talents.
2. Secondly, it will also serve the institution well if it can look at training as an
investment rather than a cost. In so doing, it should budget enough to foot the training
bill rather than letting staff member pay for their training.
3. Thirdly, the university can come up with attractive schemes that can discourage its
best talents from quitting.
4. Lastly, the university needs to review its reward policy and its performance
management systems so that employees are well remunerated and compensated. It
will also be in a position to streamline it promotion criteria so that promotion is
strictly on merit.
5.2 Suggestions for Further Research
1. Since this was a case study of Masinde Muliro University of Science and Technology,
further studies can be carried out in other public universities to establish the
generalizability of these results.
2. Longitudinal studies where data is collected more than once need to be conducted on
public universities to see if the results can compare with this snap-shot study where
data was collected just once.
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EFFECTIVENESS OF CUSTOMER SERVICE DELIVERY ON THE
PERFORMANCE OF RETAIL ORGANIZATIONS: A CASE STUDY OF
NAKUMATT SUPERMARKET IN KAKAMEGA TOWN
ABSTRACT
Many researches and studies carried earlier have not addressed the issues how customer
service can be effectively delivered but they dwell much on contribution to business
performance through loyalty, customer satisfaction and competitive advantage. This makes it
difficult for business to understand and expect what is the best to deliver customer services.
Therefore, this research focused on effectiveness of delivery of customer service and its
impact on retail organization performance. The research was guided by the following
research objectives; to examine effects of design and implementation customer service
delivery on organization performance, to assess the various methods used in customer service
delivery and their effects on organizational performance, to determine innovative strategies
for improving customer service delivery to enhance organizational performance and to
establish how price, location, and queue affect customer service delivery and organizational
performance. A quantitative approach was adopted as the research focused on describing and
getting inference from finding on the effect of customer service delivery and retail
performance. A sample size of 110 respondents was used in this study from Nakumatt
supermarket Kakamega. Respondents were purposive selected from three categories of
employees, Management and customers of Nakumatt Supermarket Kakamega. In the study,
primary data was collected using questionnaires from different respondents categorized in
three groups. Retail organization performance was taken as dependent variable while
independent variable was shown by Methods, innovative strategies and design and
Ms. Patriciah Kamene Wambua
MBA (Strategic Management)
Jomo Kenyatta University of Agriculture
and Technology - Kakamega Campus,
Dr. Kimani Chege
Lecturer
Jomo Kenyatta University of Agriculture
and Technology - Kakamega Campus
Dr. Douglas Musiega
Director Jomo Kenyatta University of Agriculture
and Technology - Kakamega Campus,
Mr. Kevin Kilonzo Mutua
MSc Procurement and Logistics
Jomo Kenyatta University of Agriculture
and Technology - Kakamega Campus
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implementation of customer service delivery. Price, queue and location were used as
intervening variables. A cross sectional research design was adopted which involved
descriptive statistics and inferential statistics of correlation and multiple regression. DI design
and implementation, MU method used and innovative strategies IS were found to be
significantly positively correlated to ROP retail organization performance. Regression
analysis showed that 44.8% variance in organization performance can be explained or
accounted by the independent variables used in this study. Queue, location and price taken as
intervening variables indicate that they are significant in retail performance with significant
increase in R square value 47.0%, 46.5% and 53.1% respectively. Thus the above factors
should be considered as having effects on the performance of the retail organization and the
effectiveness of customer service delivery. It was recommended that retail organization
should put much emphasis on the methods used in customer service delivery as it accounts
for 32.5% of variance in performance as well as they should consider the prices of their
goods and services as there was tremendous increase in percentage variance explained by
independent variables with price as intervening variable.
Keywords: Customer service, Effectiveness, Performance.
1.1 Introduction
The design and implementation of customer service delivery processes plays a key input in
the overall competitiveness of modern organizations. Thus, no service can be effective if not
well designed and delivered. As Roth and Jackson (1995) observe, process capability and
execution are major drivers of performance due to their impact on service quality and
customer satisfaction. Customer service includes speed, listening, speed of response,
providing relevant information as well as responding to feedback. Those who are involved in
customer service delivery should also have the right attitude so as to create friendly
environment. The concept of customer service applies to any organization that offers goods
and services. Customer service relates to the relationship between the product or service
provider and those people who use or buy its product or services. Customer service will go
along a way to make business remain competitive and profitable
Satisfied customers are more likely to repeat business and make recommendations than dis-
satisfied one. It is less expensive to keep existing customers than to attract new ones.
Customers‟ loyalty is a prime determinant of long term financial performance of firms Jones
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and Scarce (1995). This is especially time of the service sector where customer loyalty can
substantially increase profits Reichheld (1996). At the same time effective service delivery is
not possible without employee job satisfaction.
Delivering good services calls for application of customer insight and focusing on what is
delivered. Deep insight into customers‟ needs can reduce the time and money spent on
contact that has no value and ensures the services are significant and easy to use. Attention
therefore, needs to be paid to internal processes and the internal customers as well as external
customers.
Retail organizations in Kenya
The retail industry includes all sets of activities to sell goods and services to the end user for
personal and not business use. The concern of the retailer‟s role in the marketing channel was
raised by McVey (1960) about four and half decades ago and he argued that retailers tend to
view themselves as buying agents for their customers rather than as the selling agents for
their suppliers. According to Pitkin (1996), the retail industry is greatly influenced by
changes within the consumer market. The retailers consequently have the opportunity to
present products to their customers in an informative way. The rise of supermarkets in
developing countries has received considerable attention in development of literature over the
last few years Reardon et al (2003). According to this literature, supermarkets are spreading
quickly in urban areas. In Kenya for example Neven and Reardon (2004) showed that
supermarkets are rising at an annual rate of 18% and have a 20% share of the food market
overall. Currently, there is an emerging trend whereby supermarkets are penetrating the rural
townships and it may be just a matter of time before the traditional retail outlets in rural
townships are overtaken.
The dawn of supermarkets in the rural communities has opened up new opportunities for
expansion of retail trade. These developments are likely to bring on board a new class of
customers who will need a different type of customer service management as opposed to the
urban population where most of supermarkets started. In Kakamega town where this study
will be conducted is one area where supermarkets are serving both rural and urban population
thus the supermarkets have to be sensitive to the needs of both urban and rural customers.
The purpose of this study is therefore to investigate the effectiveness of customer service on
performance of retail organizations using Nakumatt supermarket in Kakamega town as a case
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study. Retail organizations according to the dictionary of business and management are
outlets through which products are sold to customers. Retailers can be classified into two
broad groups: independent traders, multiple stores or retail cooperatives. Supermarkets are
relatively large, low margin, high volume; self-service operations intended to serve a variety
of customers. In the recent times there has been a noticeable increase in the number of
supermarkets in many towns in this country. However, no known research appears to have
been conducted to ascertain the effectiveness of customer service on the performance of retail
organizations.
1.2 Statement of the Problem
Across the world, effective customer service delivery has been hailed as the key to gaining
competitive advantage and hence high performance in organizations. However, a careful
review of recent literature on customer service delivery does not show how is it effective to
performance. With rapid advancement in technology and growing customer, awareness of
their rights many customers are becoming more and more demanding. This is as a result of
the growing awareness of their rights. Hence there is need for retail organizations like
supermarkets to design and implement innovative customer service strategies and methods
that can enhance their performance particularly in this increasingly competitive environment.
The purpose of this study therefore is to find out the effectiveness of customer service
delivery on performance of retail organizations but focusing on Nakumatt supermarket in
Kakamega town.
1.3 Main Objective of the Study
The main objective of this study is to investigate the effectiveness of customer service
delivery on the performance of retail organizations.
1.4 Specific Objectives of the Study
The specific objectives are:
i) To examine effects of design and implementation of customer service delivery on
organization performance.
ii) To assess the various methods used in customer service delivery and their effects
on organizational performance.
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iii) Determine innovative strategies for improving customer service delivery to
enhance organizational performance.
iv) To establish how price, location, and queue affect customer service delivery and
organizational performance.
1.5 Research questions
i) How do supermarkets design and implement customer service delivery and does
this affect organization performance?
ii) How various methods used in customer service delivery affect performance?
iii) How does innovative strategies used customer service delivery in supermarkets
enhance performance?
iv) What are impact of price, queue and location on effectiveness of customer service
delivery and retail organization performance?
2.0 Literature Review
This chapter highlights the value theory. The chapter also reviews relevant literature as well
as empirical studied used in this study.
2.1 Value theory
This theory talks the worthiness or value of ideas, people or a thing. It aims to understand
how, why and to what degree individual people or group‟s value anything. This worthiness
can be viewed as economic, moral, ethical or any other type of value. A particular value may
be very important to one person, but unimportant to another (Siltaoja 2006). In relation to
customer service delivery, the interest of all customers must be taken care of during the
process of innovative strategies, design and implementation and methods used during
delivery of customer service
MacMillan et al (2005) indicates that stakeholders (employees, shareholders, customers,
community, investors, supplies) prefer coherence with a common concern for a reputation
entity, and therefore for them to maintain these firm reputations they need to improve their
relationship with their customers through effective customer delivery. Many large firms have
many reputations, as they are different groups that take an interest in them (Bromley 2002).
Dowling (2004). Studies have set out the importance of stakeholder perceptions in order to
understand the nature of the firms‟ reputation.
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This theory was important to my study because it recognizes that for an organization to
maintain its customers as well as other stakeholders through effective customer service
delivery, it has to have loyalty and improve on their relationship with the customers.
2.2 Empirical Studies
In bid to find previous studies, concerning customer services, several researches have been
carried how customer service affects customer satisfaction, customer loyalty and competitive
advantages. M. Hanif, S. Hafeez, A. Riaz (2010) carried out a study on factor affecting
customer satisfaction in telecommunication industry in Pakistan. They found that both
customer service and price have significant contribution on customer satisfaction. The
regression analysis showed that if customer services were responsive then it would lead to
customer satisfaction hence increase in performance. If price are compatible to service
offered, any increase in price, customers would take it positively thereby creating satisfaction
among the customers. A research carried out by Dimensional Research in 2013 on customer
service and business results using a survey of 1046 individuals who had experience with mid-
size company with aim of finding out what impact customer service have on business
performance. They found out that good customer service result to increase in purchases while
bad customer service drives customers away. 62% of customers purchased more often after
good customer service while 66% of customer stopped buying after bad customer service.
Adam, Y. Dong, M. Dresner (1995) carried out a research on linkages between Customer
Service, customer satisfaction and Performance of the airline industry in the USA. They
found a significant linear relationship between customer service between customer
satisfaction and performance. Park et al. (2004) did their research using data from Korean
airline industry found there is a relationship between airline customer service quality and
customer satisfaction. Similar results have also been found using data from retail industry,
Babakus et al (2004) showed that perceived customer service results in customer satisfaction,
Yee et al. (2008 and 2010) Did a survey using 206 Hong Kong shops found a similar results.
Similar result have also been found by Sim et al. 2010; Yee et al 2010 and 2008; Homburg et
al. 2005; Nagar and Rajan 2005 and Riley 1999. Some researchers have argued that this
increase in customer satisfaction as results of improve customer service is nonlinear i.e
diminishing marginal returns sets in. this is supported by the following researchers (Anderson
and Mittal 2000; Matzler et al 2004; Slevitch 2010 and Finn 2011)
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2.3 Innovative customer service strategies
Retail organization should come up with innovative strategies that will make them stand out
from the pack thereby gaining competitive advantage (Damanpour, 1991; Hult et al., 2004;
Wheelwright and Clark, 1992). The competitors and customers of an innovative company
perceive the company as being able to utilize the latest technology and introduce new
services at an early stage. he general intention is for innovativeness to contribute to business
performance (Damanpour, 1991). Channeling resources into the development of new services
can result in competitive advantages (Hurley and Hult, 1998). Because customer needs
evolve, firms must adopt innovations over time, particularly in order to allow the firm to
achieve a competitive advantage (Damanpour, 1991; Henard and Szymanski, 2001; Porter,
1990). In terms of innovativeness, customer service differentiation help organization to come
with quality services to suits different customer groups. In other words, customers‟ decision-
making in relation to new customer services relies not only on confidence generated from
innovation skills (Fang et al., 2008), but also on the identity and reputation of the service
provider. Past successes with service differentiation have established a customer perception
of high quality services. The implication is, therefore, that retail organization that use
customer service differentiation successfully can penetrate markets with easier than
companies lacking sufficient service differentiation. A good service reputation is an asset that
can enhance the customer‟s expectations about the company‟s offerings and mitigate
uncertainties about the offering‟s performance (Yoon et al., 1993).
2.4 Design and implementation of customer service
The design and implementation of customer service delivery affects how the customers will
perceive it and appreciate service rendered. While much operations management research has
focused on service design, experience design has received only limited attention (Pullman
and Gross 2004). However, there has been some work in this area. Several „operational‟
tools have been developed to help both design and assess the customer experience, including
creating experience clues (Berry and Carbone 2007), designing the services cape‟ (Bitner
1992), customer journey mapping (Shaw and Ivens 2002, Zomerdijk and Voss 2010), service
transaction analysis (Johnston 1999), customer experience analysis (Johnston and Clark
2008), walk-through audits (Fitzsimmons and Fitzsimmons 1994), and sequential incident
technique (Stauss and Weinlich 1997).
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Stuart and Tax (2004) argued that the customer experience can be enhanced by designing the
service system to encourage greater active customer participation. Bate and Robert (2007)
introduced an approach which involves customers in the design of the experience;
experience-based design. Pickles et al. (2008) developed this methodology to demonstrate
how three theoretical components of good design: functionality, engineering and aesthetics
can be used as a framework to improve performance, safety and governance.
In terms of taking a more strategic and holistic approach to experience design, Carbone and
Haeckel (1994) divided experience design into four phases; 1) acquisition of service
experience design skills, 2) data collection and analysis, 3) service clue design, and 4)
implementation and verification. Later Carbone (2004) suggested five steps; 1) build a
diverse design team, 2) drill down to the experience core, 3) focus on clues, 4) develop the
experience narrative or story line, and 5) prioritize implementation opportunities. In 2007
Berry and Carbone proposed a five step approach; 1) identify the emotions that evoke
customer commitment, 2) establish an experience motif, 3) inventory and evaluate experience
clues, 4) determine the experience gap, and 5) close the experience gap and monitor
execution. Carbone also recommended that to transform an organisation to an experience-
based one requires; 1) vision and strategy (clear experience statements), 2) leadership such as
a CXO (chief experience officer), and 3) transfer of skills and knowledge by getting
employee to think in terms of experience clues. These somewhat differing approaches (by the
same author) do not appear to be supported by research-based evidence about what
organisations have actually done and the impact of so doing. Thus the objective of this paper
is to investigate how effectiveness of customer service delivery affects performance
2.5 Methods used in customer Service delivery
Methods used in customer service delivery by retail organization greatly affect customer
satisfaction. For a customer service delivery to be effective, proper method must be employed
through employee of the retail organization who are tasked with the duty of delivering the
customer service. Retail organization should ensure proper training of the employees
responsible for offering customer services.
Training should not only lead to skill improvement, but should also change the way
employees think and view their jobs (Lin & Darling, 1997). Training must tell employees
why it benefits them to have good customer service and what they are trying to accomplish as
a team instead of what not to do on the job (Hartill, 2000). Retail management should come
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up with methods that allow customer service representatives to with the situation at their
without consulting their superior (Greenberg 1996). Such efficiency greatly facilitates the
service process leading to satisfied and loyal customers. Employees should apologize
sincerely, involve the customer in the resolution, fix problems quickly, do extra for the
customer, follow up with the customer and confirm repeat business. Customer service hinges
on a variety of factors that occur during exchanges with the client, but it also is determined by
numerous exchanges that occur between company employees before and during the contact
with the consumer. The employee/service provider and customer often interact and
communicate, which is also a large aspect of customer service. Employees have the ability to
make the customers‟ experience positive or negative based on this interaction. Harris (2000)
asserts, “Customer service is anything we do for the customer that enhances the customer
experience”. An analogous perspective comes from Zemke& Woods (1998) which states,
customer service is a relationship with people who are essential to everything you do;
meeting the needs and expectations of the customer as defined by the customer; used to
create a mutually beneficial relationship between itself and those it serves; and a proactive
attitude that can be summed up as: I care and I can do. Similarly, Evenson (1999) explained
that people skills are at the root of good customer service. People skills include interpersonal
relations, problem solving, teamwork and leadership. These skills also foster a positive
attitude, effective communication, courteous and respectful interaction and the ability to
remain calm and in control in difficult situations.
Many departments in various organizations may have slightly different service dimensions.
However, certain dimensions which may/may not have been developed with Customer
Service the consideration of customers‟ expectations and perceptions seem to relate to almost
every service business. Reliability includes the employee having the ability to perform the
promised service dependably and accurately. It also involves understanding the needs and
perspectives of others and being conscientious (hard-working, well-organized and reliable)
(Cagle, 1998; Dube, Renaghen, & Miller, 1994; Greenberg and Sidler, 1998).
Responsiveness involves aggressiveness and willingness of employees to help customers and
provide prompt service (Dube, Renaghen, & Miller, 1994; Greenberg & Sidler, 1998).
Assurance includes the knowledge and courtesy of employees and their ability to inspire trust
and confidence (Cagle, 1998; Dube, Renaghen, & Miller, 1994). Empathy involves caring
and individualized attention the organization provides its customers. Empathy also involves
being able to identify emotionally with employers and customers (Dube, Renaghen, & Miller,
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1994; Goodman, 2000; Greenberg & Sidler, 1998). These dimensions should be seen in
service businesses for customers to get the most out of their experience.
Booth (1999) noted that customers want attitude, knowledge, standards and initiative when
receiving customer service. Booth (1999), Cagle (1998) and Evenson (1999) stated that
communication skills are also critical in delivering customer service. Hyland (2000)
suggested doing what the MSC is in the process of; list the most important customer service
elements and circulate questionnaires to customer service representatives and customers
asking them what they think are important. Confidence is a Customer Service good starting
point for customer service, according to Cagle (1998). He also explained that good people
skills, and the ability to position information in a way that is acceptable and exciting to the
customer are also important in customer service.
The best customer service representatives solve problems with ease and speed (Greenberg &
Sidler, 1998). Other qualities include: security (calm and clear headed, even under
demanding situations), helpfulness (agreeable, and good natured), and problem-solving
ability (smart enough to meet customer needs). People who succeed in customer service are
motivated to please and be helpful (Greenberg & Sidler, 1998).
2.6 Retail Organization Performance
Retail organization performance encompasses all aspect that makes a firm to meet its
objectives. In this context, retail performance is considered how well a retail store satisfy it
customer, how loyal the customer are, how it retains its existing customer and how
competitive the retail store it is. Customer satisfaction is actually a term most widely used in
the business and commerce industry. In a competitive marketplace where businesses compete
for customers, customer satisfaction is seen as a key differentiator and increasingly has
become a key element of business strategy. There is a substantial body of empirical literature
that establishes the benefits of customer satisfaction for firms. It is well established that
satisfied customers are key to long-term business success (Kristensen et al., 1992; Zeithami et
al., 1996; McColl-Kennedy and Scheider, 2000).It also defined as a global issue that affects
all organizations, regardless of its size, whether profit or non-profit, local or multi-national.
Companies that have a more satisfied customer base also experience higher economic returns
(aker and Jocobsson, 1994; Bolton, 1998; Yeung et al., 2002).
Consequently, higher customer satisfaction leads to greater customer loyalty (Yi, 1991;
Anderson and Sulivan, 1993 Boulding et al., 1993) which in turn leads to higher future
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revenue (Fornell, 1992; Bolton, 1998). For that matter, many market leaders are found to be
highly superior-customer-service orientated. They have been rewarded with high revenue and
customer retention as well.
For that matter, organizations in the same market sector are compelled to assess the quality of
the services that they provide in order to attract and retain their customers. Apparently, many
researchers conceptualize customer satisfaction as an individual‟s feeling of pleasure (or
disappointment) resulting from comparing the perceived performance or outcome in relation
to the expectation (Oliver, 1981; Brandy and Robertson, 2001; Lovelock, Patterson and
Walker, 2001). There are two general conceptualizations of satisfaction here, namely, the
transaction-specific satisfaction and the cumulative satisfaction (Boulding et al., 1993;
JonesandSuh, 2000; Yi and La, 2004). Transaction-specific satisfaction is the customer‟s very
own evaluation of his other experience and reaction towards a particular service encounter
(Cronii and Taylor, 1992; Boshoff and Gray,2004). This reaction is expressed by the
customer who experiences a product or service for the first time. Meanwhile, cumulative
satisfaction refers to the customer‟s overall evaluation of the consumption experience to date
(Johnson, Anderson and Fornell, 1995); an own accumulation of contacts with services
provided them from day-to-day. It is from this accumulation that customers establish a
personal standard which is used to gauge service quality. However, in general, it is agreed
that customer satisfaction measurement is a post-consumption assessment by the user, about
the products or services gained (Churchill and Surprenant, 1982; Yuksel and Rimmington,
1988).
3.1 Introduction
This chapter deals with details regarding the procedures that will be used in conducting the
study. It covers key areas which include research design, population, sample size and
sampling techniques, instruments and data analysis techniques and presentation.
3.2 Research Design
Cross Sectional Survey research was used in this study as the study focused on testing rather
coming up with theory. Quantitative approach was adopted as we are focused on describing
and getting inference from the finding on the effect of customer service delivery and retail
Performance. A case study will be suitable for this study since the research will be conducted
in Nakumatt supermarket in Kakamega Town in order to collect quantifiable information
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since the supermarket is found in most regions in the country and has the same characteristics
with other supermarkets.
3.3 Sampling Technique
The study targeted Nakumatt supermarket in Kakamega Town, its employees and customers.
Therefore, the sampling technique used to conduct this research was census since all the
employees and customers formed the sample population.
3.5 Data Collection Techniques
In carrying out this study, questionnaires were used as research tool to collect data from the
sampled respondents. They contained structured questions relating to each variable under
study. The questions related to innovative customer service strategies, customer service
delivery methods and design and implementation of customer service delivery as independent
variable and retail performance as dependent variable were constructed to an interval scale of
five. Price, location and queuing were used as intervening variable. The respondents
answered whether they strongly agree, agree, disagree or strongly disagree with the
statements on the questionnaire. The questionnaires were used in data collection, comprised
both open-ended and closed ended. Completed questionnaires were personally administered
to the sampled respondents while structured interview schedules were employed on key
informants from the managerial staff.
Self-completion questionnaires will be selected because they are cost effective when handling
large number of widely spread respondents especially those who are literate.
The research will administer the questionnaires and conduct interviews with key informants
as a follow up of responses in the administered questionnaire
3.6 Measurement of variables
Innovative customer service strategies, customer service methods and design &
implementation of customer services were used as independent variables. Retail performance
was used as dependent variable while price, queuing and location were used as intervening
variables. A well-structured standard questionnaire was used with responses on a five point
Likert Scale of Strong Disagree-1, disagree,-2neutral-3, agree-4 and strongly agree-5
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Independent variables
Innovative strategies for customer service delivery: This was measured using
dimensions of suitability, reliability, response rate and flexibility
Customer service delivery methods. This was measured using dimensions of
standardization of design, effectiveness of design,, customer involvement in design, multiplicity,
complementary and user friendly.
Implementation of customer service. This was measured using dimensions of
effectiveness, suitability, training method and support
Dependent variable
Retail performance. This was measured using customer loyalty, customer retention,
customer satisfaction and sales growth
Regression equation
Pf=α+β1D1+ β2MU+ β3IS+e
Where α is the regression constant and β1, β2 and β3 is the coefficient of the independent
variables. Pf is the performance, DI is design and Implementation, Mu is the method and IS is
the innovative strategies
4.0 Data Analysis and Discussion
4.1 Demographic characteristics
The male accounted for 49.5% and female accounted for 50.5%. The distribution of 18-30
years was 9.9% while 31-40 years was 18.9% while 41-50 years 27.9%, 51-60 years 27.9%
and over 60 and above years 15.3%, with education level, secondary level accounted for
11.7%, diploma accounted for 27.9%, degree accounted for 30.6% and master 29.7% and for
duration in the supermarket less than one year accounted for 7.2%, 1-3 years accounted for
15.3%, 4-6 years accounted 22.5%, 7-9 years accounted for 28.8% and over 10 years
accounted for 26.1%
4.2 Correlation Analysis
Correlational analysis was done to find out the effect of customer service delivery variables
on retail organization performance.
Table 4.1: Correlation Table (Independent variables only)
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There was a significant positive strong relationship between design and implementation of
customer service delivery and retail performance (r=.549**
, p<0.01) as shown in the table
4.1 with 99.0% confidence level. This is in line with first objective which sought to examine
how supermarkets design and implementation of customer service delivery affects
performance. This means that better design and implementation of customer service delivery
will result to an improved performance of the retail supermarket
There was a significant positive strong relationship methods used in customer service
delivery and retail performance (r=.570**
, p<0.01) as shown in the table 4.5 with 99.0%
confidence level. This is in line with second objective of the study which sought to explore
the various methods used in customer service delivery and how they affect performance, this
means that better methods of customer service delivery will result to an improved
performance of the retail supermarket
There was a significant positive strong relationship innovative strategies used in customer
service delivery and retail performance (r=.536**
, p<0.01) as shown in the table 4.5 with
99.0% confidence level. This is in line with fourth objective of the study which sought to
explore innovative strategies for improving customer service delivery and how they affect
performance. This means that better innovative strategies of customer service delivery will
result to an improve performance of the retail supermarket
4.3. Contribution of independent variables on performance variance
Stepwise regression was done using significant variables to find how each independent
variable contributes to 46.5% variance in retail performance.
Table 4.2 Stepwise Regression
Pf=2.855+0.197MU
Pf=2.855+ 0.197MU+ 0.134IS
Pf=2.855+0.139D1+0.197MU+0.134IS
Table 4.2 shows the results of R square increases with addition of each predicator variables
Method Used, Innovative Strategies, Design, and Implementation to a value of 0.463. F value
indicates that all of the independent variables are significant since the P<0.05. Method used
in customer service delivery contributes 32.5% in accounting of variance in the performance
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of retail store while Innovative Strategies contributes an additional 10.7% while design and
implementation contributes the remaining 3.1% to the R square. This indicates that the
method used in service delivery accounts more in variance of performance of the retail shop
while customer mind less about its implementation and design
4.4. Predicating performance from independent variables (Regression
Coefficients)
Regression coefficients were used in predicting performance from customer service delivery
Table 4.3 Regression Coefficients
The intercept value for retail performance is 2.855 and its t-Value is 13.221 and the P
value=0.000. This indicates that if Design and Implementation, Methods used and Innovative
strategies are held at zero the retail performance will be 2.855 and this value is statistically
significant p<0.05. The partial correlation coefficient value of Design and Implementation is
0.139. This means that if other predicator variables are held constant (Innovative strategies
and Methods used) an increase in one unit in Design and Implementation rate will result to an
increase in Retail performance by 0.139. The partial correlation coefficient value of Methods
used is 0.197. This means that if other predicator variables are held constant (Innovative
strategies and Design and Implementation) an increase in one unit in Methods used will result
to an increase in Retail performance by 0.197. The partial correlation coefficient value of
Innovative strategies is 0.134. This means that if other predicator variables are held constant
(Methods used and Design and Implementation) an increase in one unit in Innovative
strategies used will result to an increase in Retail performance by 0.134. All of the three
predicators variables coefficient values were significant as their p<0.05 as shown in the table
4.3
The regression model for the first equation is as from table 4.3
Pf=2.855+0.139D1+0.197MU+ 0.134IS
5 Conclusion
The study found out that there was a significant positive relationship between design and
implementation of customer service delivery and retail performance with r=0.549 P<0.005
thus significant with 95.0% confidence level. This indicates that with better design and
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implementation of customer service delivery, the performance of the supermarket will
increase in the same direction, positive.
Then regression results also indicated that design and implementation of customer service
delivery is significant factor on the performance of supermarket F (1,110) =30.752, p<0.01
which is significant with 95.0% confidence level. The regression coefficient for DI is 0.139
which shows that 13.9% of variance in performance can be accounted or explained by the
Design and implementation of customer service delivery and its significant P<0.05. DI
contribution to R Square is 3.1% and its significant at 95% confidence level
This indicates that the retail organizations should consider the design and implementation of
customer service delivery as it has a significant positive effect on its performance. Better and
effective design and implementation of customer delivery service will increase its
performance
The study found out that there was a significant positive relationship between design and
implementation of customer service delivery and retail performance with r=0.574 P<0.005
thus significant with 95.0% confidence level. This indicates that with better and effective
methods of customer service delivery, the performance of the supermarket will increase in the
same direction, positive.
Then regression results also indicated that methods used in customer service delivery is the
main significant factor on the performance of supermarket F (1,110) =52.555, p<0.01 which
is significant with 95.0% confidence level. The regression coefficient for MU is 0.197 which
shows that 19.7% of variance in performance can be accounted or explained by the methods
used in customer service delivery and its significant P<0.05. MU contribution to R Square is
32.5% and it‟s the highest among the three independent variables and its significant at 95%
confidence level
This indicates that the retail organizations should consider most methods used in customer
service delivery as it has a significant positive effect on its performance and its contribution
to R Square is the highest. Better and effective methods used in customer delivery service
will strongly increase its performance
The study found out that there was a significant positive relationship between innovative
strategies used in customer service delivery and retail performance with r=0.541, P<0.005
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thus significant with 95.0% confidence level. This indicates that with better and effective
innovative strategies used in customer service delivery, the performance of the supermarket
will increase in the same direction, positive.
Then regression results also indicated that innovative strategies used in customer service
delivery is significant factor on the performance of supermarket F (1,110) =41.107, p<0.01
which is significant with 95.0% confidence level. The regression coefficient for IS is 0.134
which shows that 13.4% of variance in performance can be accounted or explained by the
innovative strategies used in customer service delivery and its significant P<0.05. IS
contribution to R Square is 10.7% its significant at 95% confidence level
This indicates that the retail organizations should consider most innovative strategies used in
customer service delivery as it has a significant positive effect on its performance. Better and
effective innovative strategies used in customer delivery service will strongly increase its
performance
6.1 Recommendations
According to study, the recommendations are as follows;
Since there was significant positive relationship between methods used in customer service
delivery and performance to improve performance, the retail organization management need
to ensure emphasis is placed on proper, better and effective method of customer service
delivery. Varying methods of customer service delivery will ensure all customer needs are
taken care of by the retail organization thereby increase their retention and customer
satisfaction thus improve in performance
There was also a significant positive relationship between design and implementation and
innovation strategies of customer service delivery and its performance. The management of
retail stores should come up good design of customer service delivery and their
implementation. They can outsource this service to third parties companies which are
specializing in designing customer service. This will ensure high quality customer service
delivery that will satisfy customers‟ needs. The management should also employ personnel
who are well talented and understand what customers require from customer service delivery.
This will ensure that innovative strategies are incorporated during design and implementation
of customer service delivery so as the required objective is achieved
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The management should consider the pricing of the items, location of their store and the
length of their queue. This is because all the three intervening variables had significant effect
on how customer service delivery affects performance. Many customers will favor affordable
price that is consummate with quality of the product or service, the physical location of the
store and other service and products offered within the vicinity of the store, availability of
enough parking store and how secure the place and lastly the number of cashier who are
available as well as length of customer service delivery queue and their response rate.
6.2 Recommendations for further research
The study limited itself on effectiveness of customer service delivery to performance
using quantitative data within Nakumatt Supermarket Kakamega Branch. However, there
is need for research in future in the following areas.
Use of both qualitative and quantitative data during data analysis
Use of secondary data in the analysis of data
Carrying out a research that will cover all the supermarket outlet in the region
Carrying out research which offer service unlike goods
Use other method of analysis like factor analysis that will allow use of numerous
variables in the determination of performance
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Tables and Figures
Table 4.1: Correlation Table (Independent variables only)
DI Mu IS Pf
DI Pearson Correlation 1
Sig. (2-tailed)
N 110
Mu Pearson Correlation .469**
1
Sig. (2-tailed) .000
N 110 110
IS Pearson Correlation .610**
.419**
1
Sig. (2-tailed) .000 .000
N 110 110 110
Pf Pearson Correlation .549**
.570**
.536**
1
Sig. (2-tailed) .000 .000 .000
N 110 110 110 110
Source: Primary Data; 2014
Table 4.2 Stepwise Regression
Model R R Square
Adjusted R
Square
Std. Error of the
Estimate R Square Change
1 .570a .325 .319 .21441 .325
2 .657b .432 .422 .19760 .107
3 .680c .463 .448 .19306 .031
Source: Primary Data; 2014
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Table 4.3 Regression Coefficients
Model
Un-standardized
Coefficients
Standardized
Coefficients t Sig. Correlations
B Std. Error Beta Zero-order Partial Part
(Constant) 2.855 .216 13.221 .000
DI .139 .056 .232 2.477 .015 .549 .233 .175
Mu .197 .045 .360 4.403 .000 .570 .392 .312
IS .134 .050 .244 2.677 .009 .536 .251 .190
Source: Primary Data; 2014
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AGE OF THE FIRM AS A FACTOR INFLUENCING CAPITAL
STRUCTURE OF INSURANCE COMPANIES IN KENYA
Abstract
Capital structure refers to the combination of debt and equity capital a firm uses to finance its
long-term operations. The capital structure decision can affect the value of the firm by
changing the firm‟s expected earnings, its cost of capital or both. One of the most important
objectives of determining an optimal capital structure of the firm is to ensure the lowest cost
of capital and to maximize shareholders wealth. This paper is on age as a factor affecting
capital structure in the insurance sector companies. This study sought to establish the
influence of age as a factor of capital structure of the insurance companies in Kenya. The
study focused on the entire population of the registered insurance companies listed in the
Nairobi Securities Exchange in Kenya. Expectedly, the result of the study is sufficient to give
an insight into how age of insurance company influences its capital structure among the listed
insurance companies in the Nairobi Securities Exchange in Kenya. This study employed
univariate analysis to measure the impact of this factor on the company‟s capital structure.
The findings established a co efficient of correlation of 0.809 and a regression of 0.65
indicating a strong relation between age and the capital structure of insurance companies.
KEY WORDS: Capital Structure, Firm, Insurance Industry, Earnings before Interest and
Taxes, Nairobi Stock Exchange (NSE), Modigliani and Miller (MM)
Introduction
One of the most important objectives of determining an optimal capital structure of the firm
is to ensure the lowest cost of capital and to maximize shareholders‟ wealth (Ellili & Farouk,
Cheruiyot Ng’etich Joseph Sawe
MBA Student
Jomo Kenyatta University of Agriculture and
Technology,
Nairobi, Kenya
Dr. Ondiek Alala
Lecturer
Kabianga University,
Kenya
Dr. Douglas Musiega
Director
Jomo Kenyatta University of Agriculture
and Technology,
Nairobi, Kenya
Gerishom Wafula Manase
Phd- Student
Jomo Kenyatta University of Agriculture
and Technology,
Nairobi, Kenya
International Journal for Management Science and Technology (IJMST) Vol. 2; Issue 4
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2011. An optimal capital structure is reached at a point where the cost of the capital is at its
minimum. The determination of an optimal capital structure as well as the factors that
determine it have been and still is an important area in financial management. However, as
Myers puts it, the puzzle of how firms make capital structure decisions is still unresolved
(Myers, 1984).
Company financing decisions involve a wide range of policy issues, which have implications
at both the macro and micro levels. At the macro level, such decisions affect capital market
development, interest rate, security price determination, and regulation. At the micro level,
such decisions affect capital structure, corporate governance and company development
(Green et al., 2002). Earlier studies by Singh & Hamid (1992) and Singh (1995) using data on
companies in selected developing countries, found that firms in developing countries made
significantly more use of external finance to finance their growth than industrialized
countries. They also found that firms in developing countries rely more on equity finance
than debt finance. In India, Cobham & Subramaniam, (1998) used a sample of larger firms
and found that Indian firms use lower external and equity financing. In a study of large
companies in ten developing countries, Booth et al., (2001) also found that debt ratios varied
substantially across developing countries, but overall were not out of line with comparable
data for industrial countries.
Expected factors affecting Capital Structure
The hypothesized factors affecting the capital structure are: age of the company, size of the
company, the company‟s influenced by the life stage of the firm as financing needs may
change with the changing circumstances of the firm (Damodaran, 2001; Bender & Ird, 1993).
In general, the trade-off theory, agency theory and pecking order theory were among some of
the theories developed by researchers. The trade-off theory of capital structure, which is also
referred to as the tax, based theory states that optimal capital structure is obtained where the
net tax advantage of debt growth prospects, profitability, ownership structure, among others.
The arbitrage argument of Modigliani and Miller (1958) stimulated a lot of research in the
area of capital structure. One of the sub theories for example proposes that capital structure
may be financing balances leverage related costs such as financial distress and bankruptcy,
holding firm‟s assets and investment decisions constant (Baxter, 1967 & Altman, 2002). This
therefore suggests that it is not an optimal decision for the firm to issue equity.
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Myers, (1984) suggests that a manager is reluctant to issue equity if they feel it is
undervalued in the market. Pecking order theory proposed by Myers states that firms prefer to
finance new investment, first internally with retained earnings, then with debt, and finally
with an issue of new equity. Myers argues that an optimal capital structure is difficult to
define as equity appears at the top and the bottom of the „pecking order‟. Internal funds incur
no flotation costs and require no disclosure of the firm‟s proprietary financial information
that may include firm‟s potential investment opportunities and gains that are expected to
accrue as a three result of undertaking such investments. The agency cost theory of capital
structure states that an optimal capital structure is determined by minimizing the costs arising
from conflicts between the parties involved. (Jensen & Meckling, 1976) argue that agency
costs play an important role in financing decisions due to the conflict that may exist between
shareholders and debt holders. If companies are approaching financial distress, shareholders
can encourage management to take decisions, which, in effect, expropriate funds from debt
holders to equity holders. Sophisticated debt holders will then require a higher return for their
funds if there is potential for this transfer of wealth. Debt and the accompanying interest
payments, however, may reduce the agency conflict between shareholders and managers.
The Kenyan Insurance Sector
The Kenyan Insurance Market is governed by the Insurance Act (1984) administered by the Insurance Regulatory Authority (IRA). Under
This Act, all assets, liabilities and lives within Kenya must be insured with an Insurance Company registered in Kenya under the Insurance
Act. It is also a requirement under the Insurance Act that the Insurance Regulatory authority must approve all reinsurances abroad.
Additionally, all insurance companies must deposit with the Insurance Regulatory Authority their schedule of premium rates for all classes
of business. The Insurance Act lays down the terms and standards required by Law for the efficient operation of the Insurance Industry. We
comply with all the requirements under the Law, to the letter.
There are two Kenyan Reinsurance companies i.e. Kenya Reinsurance Company Limited and East Africa Reinsurance Company Limited.
There are also two regional reinsurance companies namely Africa Reinsurance Company and PTA Reinsurance Company Limited operating
in Kenya. However, the capacities of these reinsurance companies are small and more than half of the reinsurances are placed overseas.
The insurance industry in Kenya is said to have been growing steadily over the last few years,
according to a survey carried out by Think Business. Their survey indicated that insurance
companies are now investing more in government securities as compared to previous years.
The survey found that total share capital in the industry inched upirds from KES 10.2 billion
in 2008 to KES 12.9 billion in 2009. In the Budget, the then Finance Minister announced
regulations that required insurance firms to enhance their capital based on the different
classes of business that they underwrite before June 14, 2010. Those dealing with general
business were required to raise their share capital to KES 300 million, while those
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underwriting life were expected to increase theirs to KES 150 million. For firms doing both
general and life, the requirement is pegged at KES 450 million. Most notably, the industry
records a 70% rise in bank deposits from KES 17.6 billion in 2008 to KES 60.5 billion in
2009. It however registered declines in equipment and property, which depreciated by 11%.
On the issue of bank assurance, a generally new trend, where banks sell insurance products
on behalf of insurance companies, analysts said that it is a risky business, and would not work
at the moment, since there is no regulatory body to put mechanisms in place for it to succeed.
Statement of the Problem
High risk exposure, poor understanding and ignorance about benefits of insurance, high cost
of insurance premiums, and low per capita income and low countrywide access of insurance
services especially in rural areas are some of the hurdles in the insurance sector in Kenya.
(Kuria, 2010), maximization of benefits and reduction of costs in this sector is very important
since it contributes to stability of all the other sectors of the economy. Although several
studies have been done on the determinants of capital structure of the companies listed at the
NSE, some of these studies came up with conflicting conclusions. In addition, these studies
were carried out on different points in time and for different durations and some of the studies
focused on specific sectors of the economy and it is necessary to ascertain if these findings
hold in other sectors of the economy, and in This case, the insurance sector. For instance
empirical investigation, Kinyua, (2005) on capital structure determinants for small and
medium-sized enterprises in Kenya, found that, profitability, company size, asset structure,
management attitude towards risk, and the lender‟s attitude toirds the company are key
determinants of capital structure. There is therefore need to ascertain whether this finding
holds in other sectors of the economy. Munene (2006) found out that profitability alone does
not account for variations in capital structure. Arimi (2010) concluded that there is a negative
relationship between performance and capital structure. Kamau (2010) concluded that there is
a weak relationship, while Ondiek (2010) found out that there is a positive relationship. These
findings therefore conflict making further research in this area necessary. A study on the
determinants of the capital structure of these companies is therefore an important research
area, which will give an empirical analysis of what really determines the capital structure, and
this will contribute in the continuing search for an optimal capital structure for firms. This
study is relevant in the Kenyan context given the important role the insurance companies are
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expected to play in economic growth. It is expected that the findings of this study will have
important policy implications for Kenyan firms.
Objective of the Study
This study sought to establish the extent to which the age of the firm affects capital structure
of insurance companies in Kenya listed in the Nairobi securities exchange
Research Questions
What is the extent to which the age of the Insurance firm affects capital structure?
Hypothesis
H0: There is no linear relationship between the age and the capital structure.
Limitation to the study
The study focused only on determinant of capital structure of insurance companies listed in
the NSE
LITERATURE REVIEW
Theoretical Review The determination of capital structure has been one of the most controversial topics in finance
and several theories have been put forth on this subject. Bradley et al (1984) acknowledges
that capital structure has been one of the most contentious issues in the theory of finance.
Several years later, Myers also concludes that there is no universal theory of debt-equity
choice and there‟s no reason to expect one (Myers, 2001). The relevant theory for the study is
the capital structure life stage theory as follows:
Capital Structure Life Stage Theory
This theory deals with the relationship between organizational life stage and capital structure.
Bender and Ird (1993) focused on the trade-off between business risk and financial risk. They
posit that business risk reduces over the life stages of a firm, allowing financial risk to
increase. Hovakimian, et al (2001) also suggested that „firms should use relatively more debt
to finance assets in place and relatively more equity to finance growth opportunities‟, and
should, therefore, use progressively more debt in their financing mix as they mature.
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Damodaran (2001) also supported This view by proposing that expanding and high-growth
firms would finance themselves primarily with equity, while mature firms would replace
equity with debt.
Capital structure life stage theory seems to suggest that debt ratios should increase as the firm
progresses through the early life stages. Empirically, however, little work has been done to
support or refute this idea. Morgan and Abetti (2004) in their analysis of the venture capital
financing of biotech ventures, argued that high technology ventures are so risky that they can
only be financed by venture capital and private equity sources. Their view supports the theory
that riskier firms in the infancy and growth life stages should use more equity. According to
Frielinghaus et al., (2005), firms in infancy and growth stages have a high business risk and
cannot afford financial risk, while firms in prime and stable stages can afford the extra risk
that accompanies debt financing. Firms in the declining life stages would experience a growth
in business risk and would need to decrease their exposure to debt.
Age of the firm as a Determinant of Capital Structure
There are different factors determined by the capital structure theories and that may affect the
financial leverage choice. According to Harris and Arthur (1991), the debt ratio increases
with fixed assets, non-debt tax shield, growth opportunities and company size and decreases
with volatility and profitability. Titman and Wessels, (1988) confirm that asset structure, non-
debt tax shields, growth, uniqueness, industry classification, size, earnings volatility, and
profitability are factors that may affect leverage according to different theories of capital
structure. Among the factors, the most common cited are asset tangibility, non-debt tax
shield, profitability, size, expected growth, uniqueness, operating risk, industry classification,
managerial ownership, and the age of the company. This study looks at the age of the firm.
Age of the Firm
The age of the company is considered an important determinant of capital structure in most
financial literature. The longer the company is in business, the higher is its ability in taking
on more debt and therefore there is a positive relationship between the age and the leverage
of a firm. In general, the older companies have stronger reputation and good name built up
over the years. The managers concerned with the reputation of their companies tend to act
more prudently and avoid risky projects ensuring by consequence a higher quality (Peterson
and Rajan, 1994).
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In their empirical test, Ellili and Farouk, (2011) found out the age of a firm seems not to
affect the short-term leverage of the company while it negatively affects the long term
leverage. Their findings therefore suggest that, the mature companies are no longer interested
in accumulating more long-term debt in their capital structure. In their study, they measure
the age of the company by the number of years in business. It is this same measure that is
used in this paper, that is, a company‟s age is the number of years it has been in business.
Empirical Studies on Capital Structure
Arimi, (2010) did a study on the relationship between capital structure and financial
performance among firms listed under the industrial and allied sector at the Nairobi Stock
Exchange. His study covered five years, from 2004 to 2008. This study found out that, there
exists a negative relationship between debt-equity ratio and return on equity (ROE), that is to
say, an increase in the debt-equity ratio leads to a decrease in ROE. This implies that
companies are unwilling to source for funds externally when ROE is on the increase.
Kamau, (2010) studied the relationship between capital structure and financial performance
of insurance companies in Kenya. This study covered four years, from 2006 to 2009. The
study found out that there is a weak relationship between financial performance and capital
structure. This implies that debt to equity ratio accounted for only a small percentage of
financial performance among the companies studied.
Ondiek, (2010) also carried out a study on the relationship between capital structure and
financial performance of the firms listed at the Nairobi Stock Exchange. This study
concluded that the profitability of a company, its asset tangibility and company size are key
determinants of capital structure to various degrees. Size of the company and profitability are
therefore important determinants of capital structure.
Kuria, (2010) studied determinants of capital structure of companies quoted at the Nairobi
Stock Exchange. This studied covered seven years from 2003 to 2009 and regression is used
to analyze the data collected. The study concluded that profitability and asset structure are the
determinants of capital structure. Growth is found out to be not a very important determinant,
while size and taxation were seen to have an insignificant influence on capital structure.
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Boodhoo, (2009) provide a brief review of literature and evidence on the relationship
between capital structure and ownership structure. The paper also provides theoretical
support to the determinants of capital structure.
Mehmet and Eda, (2009) tested whether average leverage level of sector and leverage level of
sector leader are effective on capital structure decisions of selected firms and sectors listed in
Istanbul Stock Exchange for the period of 1999 to 2006. They found out that, while sector
averages are effective at a meaningful extent in white goods sector, it is seen that it affects
leverage level of sector leader considerably. They show that, in their study using panel data
analysis method considering firms as a whole without discrimination, both sector average and
sector leader display a positive relation with leverage level of firms.
Munene, (2006) studied the impact of profitability on capital structure of companies listed at
the Nairobi Stock Exchange. The study is carried out over a period of six years from 1999 to
2004 and the data collected is analyzed using regression. This study established that
profitability on its own does not exclusively account for variability in capital structure. The
study revealed that there are more variables that could be in play to determine a firm‟s capital
structure.
Fakher et al, (2005) provides evidence of the capital structure theories pertaining to a
developing country and examines the impact of the lack of a secondary capital market by
analyzing a capital structure question with reference to the Libyan business environment. The
results show that both the static trade-off theory and the agency cost theory are pertinent
theories to Libyan companies‟ capital structure whereas there is little evidence to support the
asymmetric information theory. The lack of a secondary market may impact on agency costs,
as shareholders who are unable to offload their shares might exert pressure on managers to
act in their best interests.
Matibe, (2005) studied the relationship between ownership structure and capital structure for
companies quoted at the Nairobi Stock Exchange. This study covered the years from 1998 to
2002 and made use of correlation analysis to analyze the data collected. The study found out
that firms owned by the state are more likely to borrow than those owned by individuals,
institutions or foreign investors. This implies that state-owned firms have a greater appetite
for debt than those owned by individuals and other investors. Also, it may mean that state-
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owned firms have more access to debt than the individual owned and other investor owned
firms.
Kinyua, (2005) did an empirical investigation of capital structure determinants for small and
medium-sized enterprises in Kenya. The study covered five years, from 1998 to 2002 and
used correlation and regression to analyze the data collected. The study found out that
profitability, company size, asset structure, management attitude towards risk, and the
lender‟s attitude towards the company are key determinant of capital structure. There is
therefore need to ascertain whether this finding holds in other sectors of the economy.
Keshar, (2004) examined size, business risk, growth rate, earnings rate, dividend payout, debt
service capacity, and the degree of operating leverage as expected determinants of capital
structure of the companies listed at the Nepal Stock Exchange as of July 16, 2003. They used
an eight-variable multiple regression model to assess the influence of defined explanatory
variables on capital structure. Their study shows that size, growth rate and earning rate are
statistically significant determinants of capital structure of the listed companies.
Odinga, (2003) studied the determinants of capital structure of companies listed at Nairobi
Stock Exchange for a period of thirteen years from 1989 to 2001. His study employed
multiple regressions to analyze the data collected. The study found out that profitability and
non-debt tax shield are the most significant determinants of a company‟s capital structure.
There is need therefore to determine if this is the case during a different period of time, 2001
to 2010.
Chonde, (2003) did a study of determinants of capital structures of public sector enterprises
in Kenya. The study covered the period from 1994 to 1998 and utilized regression analysis to
determine the relationships. The study found out that public sector firms did not strive to
maximize profits in a competitive market and their managers had no autonomy, capacity and
motivation to respond to competition. They therefore found it difficult to go for loans and
they depended on government funding which is categorized as equity.
Wolfgang and Roger (2003) tested leverage predictions of the trade-off and pecking order
models using Swiss data. They found that leverage of Swiss firms is comparatively low and
that more profitable firms use less leverage and firms with more investment opportunities
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apply less leverage. Their results confirm the pecking order model but seem to go contrary to
the trade-off model.
Philippe et al, (2003) also analyzed the determinants of the capital structure for a panel of 106
Swiss companies listed in the Swiss stock exchange using static and dynamic tests for the
period 1991 to 2000. They found that the size of companies, the importance of tangible assets
and business risk are positively related to leverage, while growth and profitability are
negatively associated with leverage.
Dev et al, (1997) did an analysis to confirm the linkage between capital structure and
strategic posture of the firm. They found that managers structure the selection of debt and
capital intensity in a means consistent with the strategic goal of long-run control of
systematic risk.
Titman and Wessels, (1988) extended empirical work on capital structure theory by
examining a much broader set of capital structure theories, many of which have not
previously been analyzed empirically. Since the theories have different empirical
implications in regard to different types of debt instruments, they analyzed measures of short-
term, long-term, and convertible debt rather than an aggregate measure of total debt. They
also used a factor-analytic technique that mitigates the measurement problems encountered
when working with proxy variables.
Conclusion
The various studies done on capital structure have not yet resolved the puzzle of attaining an
optimal capital structure by firms especially on the insurance industry. Various empirical
studies reviewed in this chapter have further revealed the contradicting views of researchers
on the subject of capital structure. On factors affecting the capital structure, only few studies
have been done in Kenya and specifically on the relationship between age and capital
structure. This study addressed the knowledge gap on the relationship between age and
capital structure of the insurance companies.
Figure: 2.1 The Conceptual framework
RESEARCH METHODOLOGY
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This is an explanatory study of the effect of age on capital structure of the insurance sector
companies in Nairobi, Kenya. The study employed a cross-sectional causal design to gather
the data as it is cost effective and the data is collected within a short period of time. It
involved observation of a representative subset at a defined time. It is a quantitative study and
the data collection covered the financial year (2013). Cooper and Schindler, (2000) described
a population as the total collection of elements about which the researcher wishes to make
inference. The study involved all major insurance sector registered companies in Kenya
namely; Jubilee insurance company ltd, Britam insurance company, Pan Africa insurance
Holdings, insurance company of East Africa (ICEA), and co-operative insurance company.
Primary and secondary methods of data collection were employed. Nairobi Securities
Exchange information handbook provided information for all listed companies in Kenya and
also through questionnaire.
Data is analysed using regression to measure the effect of age on the company‟s capital
structure using Y =α+β1X1 +E
Where;
Y is total leverage measured as the ratio of total interest-bearing debt to capital
α,β1-β4 are coefficients to be extracted
X1 is age of the firm measured as the number of years in business
E is the random error term
Data is presented in figures and tables. Summary statistics of the mean, standard deviation,
minimum and maximum of all the variables for both dependent and independent variable is
constructed. F-test is used to test the linear relationship between the independent and
dependent variable.
DATA ANALYSIS AND FINDINGS
A few companies were used to represent the rest of the insurance companies.
Total leverage is measured as the ratio of total interest-bearing debt to capital
The size of the firm is calculated as the natural logarithms of the total assets
The data used is from the year 2008 to 2013.
4.3 Regression Analysis
Table 4.2: Regression Analysis
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In terms of capital structure with a consideration on age of the firm, it is evident that for all
the Insurance companies involved in the study, 65.5% of the total leverage is explained by
the age.
4.3.1 Analysis of Variance for Variables
Table 4.3: ANOVA
The study revealed that the regression model is lower than the residual model, which means
that the capital structure accounts to much of the variability on the total leverage. The
significance level being below our threshold of 0.05 confirms that the significance of capital
structure to the total leverage is high and confirmed by the F test.
From the table above, the significance level is 0.000 thus showing that the model is a strong
one in predicting the outcome, since it is below the threshold of 0.05. Thus, we can
comfortably conclude that the overall model is good fit for the data. We thus reject the null
hypothesis and conclude that there is a linear relationship with at least one dependent variable
and total leverage. It also shows that at least age predicts the capital structure.
The study reveals that the regression model is lower than the residual model which means
that the total leverage accounts too much of the variability on the financial performance. The
significance level being below our threshold of 0.05 confirms that the significance of total
leverage to financial performance is high and confirmed by the F test.
Table 4.4: Age of the company and Performance of the capital structure
4.3 Summary and Interpretation of findings
Y =α+β1X1 +E
Total leverage = -0.106+0.003X1+0.118
Y is total leverage measured as the ratio of total interest-bearing debt to capital
X1 is age of the firm measured as the number of years in business
E is the random error term
The study indicates that the age of the firm had a significant impact on total leverage.
There is a linear relationship between the age of the company and the total leverage at 0.05
level of significance.
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SUMMARY, CONCLUSIONS AND
RECOMMENDATIONS
Conclusion
From the regression analysis, it is evident that there is a significant influence of the specific
factor measuring the capital structure on age. The analysis indicates that the age of the
company had a positive relationship with the total leverage. This means that how old the
company is, determined the capital structure of the companies studied.
Plagiarism
Time is a valuable factor. The study is time consuming especially during the data collection
task. Data analysis consumed the better part of the study and my time too.
Recommendations
Policy Recommendation
From the study, it is evident that there is no specific body that regulates the publication and
availability of financial information in the Kenyan market. The existing bodies, Capital
Markets Authority, Retirements Benefits Authority, Insurance Regulatory Authority and
Kenya Revenue Authority do not regulate how the market operates effectively. There‟s need
for the government through the respective ministries and parastatals to regulate the market
asymmetry in order to ensure that many people can make sound investment decisions when
investing in insurance firms.
Areas of further research
This study mainly focused on finding the factors that determine the capital structure of
insurance companies listed at the Nairobi Stock Exchange. From the data obtained, the
factors found to determine the capital structure were the size of the company, growth and also
the age of the company. This research can be extended to look for other factors that
determine the capital structure, since I believe there are many more that were not included in
this research.
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APPENICES; FIGURES AND TABLES
Figure: 2.1 The Conceptual framework
Independent Variable Dependent Variable
Figure 1: Relationship of independent and Dependent Variables
4.1 Data collected
TOTAL LEVERAGE(Capital
Structure)(Debt/Total Capital AGE
PAN
AFRICA 0.247276676 65
0.278884976 64
0.307414319 63
0 62
0 61
0 60
0 59
BRITAM 0.536395631 47
0.508827948 46
0.383729713 45
0.312343475 44
0.328233991 43
0.303644614 42
0 0
CIC
INSURANCE 0.116058517 17
0.024735542 16
0.03192006 15
0.043042847 14
0.104925909 13
0.078772591 12
0.063285281 11
JUBILEE 0.555985034 75
0.565707783 74
.432496616 73
0.421666518 72
0.245165366 71
0.227167381 70
0.251671547 69
Age of the firm Capital Structure
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Table 4.2: Regression Analysis
Model Summary
Model
R R Square
Adjusted R
Square
Std. Error of
the Estimate
1 .809a .655 .595 .1214399
a. Predictor: (Constant), Age
Table 4.3: ANOVA
ANOVAb
Model Sum of
Squares Df
Mean
Square F Sig.
1 Regression .644 4 .161 10.916 .000a
Residual .339 23 .015
Total .983 27
a. Predictor: (Constant)Age,
b. Dependent Variable: Total_leverage
Table 4.4: Age of the company and Performance of the capital structure
Coefficient
Model Unstandardized
Coefficients
Standardized
Coefficient
t Sig. B Std. Error Beta
1 (Constant) -.106 .118 -.899 .378
Age .003 .002 .212 1.224 .233
a. Dependent Variable: Total leverage
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DETERMINANTS OF REVENUE COLLECTION MAXIMIZATION
AMONG COUNTY GOVERNMENTS: A CASE OF KAKAMEGA COUNTY
Abstract
For a long time, County Government were not able to offer services effectively because they
did not collect enough revenue from local sources to compliment the Fiscal transfers. With
the expanded scope and inherited employees, what determines revenue maximization
potential of Kakamega County? The objective of the study was to analyse the determinants of
revenue collection potential of Kakamega County. A sample of 116 respondents from a
population of 384 senior management and those directly involved in revenue collection was
purposively and stratified sampled. A descriptive research design, questionnaires, interview
guides and focus group discussion were used to gather data. The data collected was analysed
through content analysis and quantitative techniques. The study established that staff
competence, community involvement, government policy, corruption, council by-laws and
staff remuneration affect revenue maximization potential. Specifically ,failure to educate and
sensitize taxpayers about benefits of paying taxes leads to low local revenue collected;
insufficient supervision during revenue collection; incompetent staffs that cannot follow and
understand the rules and regulations set by the council; fraud and embezzlement of revenues
collected leading to low local revenues collected; Community non involvement in the setting
of the fee and charges that lead to greater resistance in the payment of the same; tax
defaulters due failure of being sensitized and educated about the importance of paying taxes;
tax defaulters who are not followed and poor service delivery where there is no
commensurate service, the tax payers relaxes or refuse to pay for taxes.
KEY WORDS: County Government, Revenue, Tax
Stephen Wilberforce Amanya Makokha
MBA
Jomo Kenyatta University of Agriculture and
Technology,
Nairobi, Kenya
Dr. Ondiek Alala
Lecturer
Kabianga University,
Kenya
Dr. Douglas Musiega
Director
Jomo Kenyatta University of Agriculture
and Technology,
Nairobi, Kenya
Gerishom Wafula Manase
Phd- Student
Jomo Kenyatta University of Agriculture
and Technology,
Nairobi, Kenya
International Journal for Management Science and Technology (IJMST) Vol. 2; Issue 4
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Introduction
The County governments have power to raise and spend revenue. The Constitution through
the taxation section gives County government power to generate revenue. The county
government may impose property rates, entertainment taxes and any other tax that it is
authorized to impose by an Act of Parliament (Public Financial Management Bill, 2012). In
addition, a County government may borrow with the approval of the County government‟s
assembly and only if the national government guarantees the loan. Once various taxes have
been determined they will have to be collected. The practice has been that County
Government collect local taxes within their jurisdiction. Experience indicates that most of
County Government have limited capacity to discharge this function. With the new
Constitution, it is still a subject of debate whether the Kenya Revenue Authority (KRA) will
collect revenue on behalf of the Counties or whether it shall assist the Counties in building
their own capacities to collect their own revenue. In the long term, if the County governments
are suppressed leaving the control of finances in the hands of the Central Government, then
the whole concept of devolution was defeated. In fact, County governments without the
power to control their own finances was political and administrative units, negating the whole
idea of devolution of the Country into Counties with more efficient financial management
systems.
The purpose of establishing a county financing system is in recognition of the important role
played by County Government as agents of decentralisation; grassroots democracy; and
engines for development. Many countries aware of this potential are transferring more
resources and service responsibilities to County Government.
Equipped with such resources County Governments are increasingly taking on more
responsibilities to meeting Millennium Development Goals (MDGs) as well as facing the
challenges of globalization” (Basil Morrison 2008).
In the years 1969, 1973, 1978 and 1989 County Government saw a gradual removal of their
functions to central government ministries and departments, consequently a decline in
sources of revenue. For example, in 1969 the Transfer of Functions Act mentioned earlier
authorized the transfer of primary education, health services and road maintenance from rural
County Government to central government. The removal of these powers was due to the fact
that County Government were unable to deliver the services effectively.
One possible solution to the issue of inadequate revenues for County Government is that
addressed by the first Medium Term Plan (2008-2012) of the Vision 2030. The MTP (2008-
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2012) describes a comprehensive review of laws relating to decentralisation of funds and the
Local Government Act (Institute of Economic Affairs, 2009).
According to Smoke (1994), one of the reasons for failure of County Government is to cope
with increasing demands is to do with characteristics of their existing sources of revenue and
inadequacy of the financial regulations and procedures employed. Many County Government
are lacking administrative capacity and therefore cannot fully benefit from the existing
sources of revenue. This is quite often the case with regards to property taxes largely as a
result of the absence of proper financial cadastres and the necessary periodic revaluation
collection of charges for services rendered appear inefficient as many LAs are owed huge
amounts of money by customers, including central government and parastatals. According to
Kariuki (2003), most County Government run on deficit in their budgets thus are unable to
support their current expenditures.
Kakamega County has been created following the 2013 elections as per the Kenyan
Constitution, 2010, article 174 on Devolved Government. It has 60 wards. The policy
implementers are the County Governor, who is the Chief Executive Officer, together with the
Secretary and the executive team who oversees the day to- day management and
administrative activities. The County Representatives are policy makers. They depend on
revised the Local Government Act Cap. 265, Devolved Government Bill 2012, County
Government Bill 2012 and Public Finance Management Act 2012, Urban Areas and City
Areas Act No. 13 of 2012 Act. According to the County Government Bill 2011, Section 48
(1) Subject to subsection (3), the functions and provision of services of each county
government shall be decentralized to (a) the urban areas and cities within the county
established in accordance with the Urban Areas and Cities Act, 2011 No. 13 of 2011.
Statement of the Problem
Revenue collection administrations are often inefficient and large amounts of revenues are
left uncollected whiles that collected are sometimes inappropriately managed. This is
compounded by the fact that the sub-counties are to be harmonized into the county. The
capacity to collect the cess tax from the various sub-counties is unknown. There is a gap
between financial resources and municipal expenditure needs coupled with inadequate
financial systems. This fiscal gap is widening as urban populations expand, increasing the
demand for infrastructure and urban services. The fact that the growth of revenue does not
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match the increase in urban economic activity is technically referred to as the lack of income
elasticity. At the local level, there has been concern in many quarters over the deterioration of
services delivered by County Government in Kenya, with more regular complaints in the
newspapers about poor service delivery by Counties. The study is set out to investigate the
determinants of revenue maximization in County Government; a case of Kakamega County.
It is to establish factors that maximize revenue collection that will promote the social,
economic and political development in the Devolved system of Governance
Objective of the Study
To analyse the determinants of revenue maximization in Kakamega County Government.
Research Question
What are the determinants of revenue maximization in Kakamega County Government?
Justification of the Study
This study may enlighten the community on the factors that determine revenue maximization
in the county governments; suggest necessary measures, policies and mechanisms to improve
effectiveness in revenue collection; the financial strategies that can contribute to generation
of more revenues. County governments may offer better services to its citizens as a result of
sufficient funds gained from efficient revenue collection.
Conceptual Framework
Staff competence involves selecting qualified staff that are well trained, committed, thorough,
self motivated, and active. It also requires diligence, honesty, discipline and good public
relations to ensure revenues are collected to the maximum performance contracts entered help
set targets for revenues and act as a barometer of performance and competence.
Collection of revenue by is guided by stipulations of the County Government Act. The
existence of strong laws and court systems influences taxpayers compliance hence affect
revenue collection as a whole. Definitely, enforcement of laws will influence compliance in
payment of amounts due.
Adequate salaries levels prompt payment of salaries, rewards and all types of incentives
influence the level of human resource efficiency through motivation. The right incentive
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gives motivation to enhance target meeting. It also reduces the chances of corruption. All this
influences the revenue collected by an institution.
Community involvement or participation in matters pertaining approval of fees and charges,
budgeting process helps to create a good relationship between the citizens and the taxing
body. They get a feeling of belonging and make them more responsible. Definitely this
influences the revenues collected.
Service delivery and taxpayers‟ attitude-A tax is imposed on citizens and in return they
expect a public good. The level of commitment that the local authority puts into delivering
the public goods will determine the kind of attitude that the citizens will have on the
taxpaying. The citizens need to see the value for the money they pay. Thus, this affects
directly the level of revenue collected.
The internal audit department and the management are responsible for putting in place
structures and systems of control, which helps in sealing of loopholes for any malpractices by
employees when dealing with revenues of the institution. Further, it reduces chances of fraud
and corruption by employees. The action that was taken from audit reports will help the
organization to improve its internal control systems and hence revenue collected.
Figure: Conceptual Framework
LITERATURE REVIEW
In a report commissioned by the GoK through the formation of the Omamo Commission of
Inquiry into County Government, it was noted that the challenge in developing countries
including Kenya, is the fact that there is a slow growth in the revenues for County
Government due to limited grants from central governments as well as limited capacity
within the LAs to collect as well as grow own resources. The report cites the second reason
for the slow growth as the lack of insufficient taxing authority at the local level and shortfall
in revenue collection. (Omamo.W, 1995).
In a study commissioned by the USAID in 2001 in Uganda, it was found that the reasons for
the low levels of revenue collection are both political and technical. There is a lot of "political
interference" by both local and national politicians. Most local governments do not keep
proper records of taxpayers and tax collections. As a result, tax compliance in most districts
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has fallen below 50%of expected collections. Working in both Luwero and Nakasongola
districts, USAID's Strengthening Decentralization in Uganda (SDU) activity provided
technical assistance for both districts to organize their accounts and tax registers. During this
work, the consultants made dramatic discoveries. The names of many taxpayers were
previously not included in the tax register, no accurate record of graduated tax receipts issued
existed, and some tax receipts, which had been issued, had not been recorded. The new tax
register that was compiled showed a record 4,115 taxpayers in Luwero Town Council and
893 taxpayers in Nakasongola Town council, two of the sub-counties where the new
graduated tax system was implemented. A total of 43 accountants, sub-accountants, and other
officials with the responsibility for administering the tax system were subsequently trained in
the use and maintenance of the new graduated tax registers. As a result of these interventions,
local revenue collections in the two districts of Nakasongola and Luwero increased
dramatically, to 77% and 75 %, respectively. If this additional revenue realized were used as
counterpart funding (as is most certainly the case), it would leverage substantial amounts of
funding in Local Development Grants from the central government. This, in turn, enables the
beneficiary districts to provide more and better services for people. (USAID, 2001)
According to the Association of Local Government Authorities of Kenya, the challenges
facing County Government in Kenya included; Some LAs are too small to operate efficiently
because the LAs were formed for political reasons and not due to any process or needs
assessment. In such instances the taxes levied on the local population are not enough to
enable them meet financial targets in such a case then, high population concentration strains
available resources. Many County Government lack adequate financial base to finance their
services. The variety of enforceable revenue collection is limited thus becomes a major
challenge. It has also been noted that they have an inefficient revenue collection system
because most documents are still in hard copy and adoption of new technology like ICT and
e-government hadn‟t been adopted by the County Government. There is a high level of tax
evasion by individuals and organizations. (ALGAK, 2003)
In a study by Odd-Helge Fjeldstad (2009), conducted to analyse the challenges of revenue
enhancement in Tanzania, it was established that most of the councils have huge gaps
between reported and projected revenues. This was due to; poor administrative capacity to
assess the revenue base; poor administrative capacity to enforce the taxes; explicit and
intentional tax evasion and resistance from taxpayers; corruption, including embezzlement of
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revenues; external pressure on the local finance department to provide optimistic projections;
and political pressure on the local tax administration to relax on revenue collection. In this
setting, fundamental issues to be addressed in the context of local government fiscal reforms
were to redesign the current revenue structure and to strengthen financial management.
Moreover, measures were required to enhance taxpayers‟ compliance and to improve the
accountability of tax collectors and councillors. Undoubtedly, it was noted that there‟s room
for further improved financial management in most LAs as well as improved co-ordination
between the different levels of government. In particular, there is a need to simplify the
licence and fee structures by reducing the number of rates and coverage. Fees and licences
that have regulatory functions, such as sand fees, hunting and business licences, should be
harmonised with central government taxes, to avoid double taxation and conflicts with
national development policies such as employment creation and environmental protection.
(Fjeldstad.O, 2009)
In Africa as a whole, approximately half of local government revenues come from
intergovernmental transfers, while the other half comes from local taxes. As a rule,
decentralized, intermediary local governments, provinces, regions or departments, depend to
a greater extent on transfers for their funding than municipalities and rural municipalities,
which are themselves usually more dependent on transfers than larger cities. Many LAs are
challenged by; very limited taxation powers, taxation challenges, and non-fiscal resources
(Garnache and Pierre, 2010)
In a publication by the Architectural Association of Kenya, it was noted that Rating is an
important source of revenue for County Government in Kenya. It constitutes about 22% of
County revenues and about 1.3% of total Government Revenue. Over the years, however,
studies on Rating in Kenya indicated that rates revenue has remained stagnant or declined
over the years. The challenges in revenue collection include; adequacy and elasticity, equity,
administrative capacity and cost efficiency, political acceptability and economic efficiency.
(Mukhongo.W, 2011).
According to the a survey by World Bank on doing business in Kenya, the cost and time of
starting a business in Kenya varies from 32 days in Nairobi to 55 days in Narok and Nyeri
and as such discourages investors which in turn affects revenue collection sources and
potential for LAs. (World Bank Group, 2012)
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In general, the revenue base information is incomplete, collections are low, and enforcement
is virtually non-existent. The basic policy guidelines provide a flexible framework for an
effective property tax system. The primary obstacle to successful local revenue mobilization
is weak administration. Weak administration, combined with a lack of political will for
enforcement, generates a low level of local revenue mobilization performance. The weakest
component in tax administration is collection and enforcement. Collection rates range from 5-
60% of liabilities. This is attributable to such factors as; lack of taxpayer confidence or
understanding in how the tax is levied, collected, and enforced, and used, lack of legal and
administrative collection and enforcement mechanisms, and perhaps most importantly third,
lack of political will. (KLGRP, 2001).
METHODOLOGY
The study adopted a descriptive survey. According to Kerlinger,(1969) descriptive studies are
not restricted to fact finding, but may often result in the formulation of important principles
of knowledge and solution to significant problems. Orodho and kombo, (2002) noted that
descriptive survey research is intended to collect statistical information about people‟s
attitudes, opinions, habits aspects of management that interests policy makers and managers.
Target population was management level employees such as town clerks, town treasurers,
town engineers, and lower level employees such as revenue collectors. The study was carried
out in Kakamega County, Western Kenya, covering the twelve sub-counties of Butere,
Matungu, Mumias Central, Mumias East, Navakholo, Kakamega East, Lugari, Likuyani,
Kakamega South, Kakamega East, and Kakamega Central. Nassiuma (2000) indicates that
most surveys or experiments with coefficient variation in the range of 21% to 30% are
usually acceptable. The researcher picked 30% of revenue collectors from each local
authority; hence in this case the sample size of revenue collectors was 72. The other officers
targeted were three from each sub-county. A total of 116 respondents were used. The study
employed questionnaires, interview schedule and focused group discussions. Reliability
refers to random error in measurement it indicates the accuracy or precision of the measuring
instrument (Norland, 1990). Reliability of the questionnaire using a test and retest was carried
out. Content validity method in which the researcher sought an expert‟s opinion of whether
the contents of the instrument was adequate and also judge whether the format is appropriate
was used. Quantitative data analysis was used to measure numerical values such as mean
revenue collection per year, standard deviations and variances. Data collected was transferred
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to several tables by tallying. Data was presented using tables. Charts which are better for
showing relationships, making comparisons and indicating trends, were used. Quantitative
techniques including mean and variances was used to make decisions as appropriate
depending on the finding. Ordinal regression analysis was used to determine the effect of the
independent variables on the dependent variable. Qualitative data was analysed using content
analysis. The results were descriptive and will indicated trends or issues of interest.
DATA ANALYSIS AND FINDINGS
On staff knowledge of sources of revenue of the County Government, the respondents
indicated that 57.3% agreed, 28 % strongly agreed, 13.5% disagreed, while 2.0% were unsure
(Table 4.1). Asked whether the County Government had enough qualified staff, 30.0 %
agreed, 2.9 % strongly agreed, 44.6 % disagreed, 10% strongly disagreed while 12.6% were
unsure (Table 4.2)
Asked whether the county government has enough staff for revenue collection, 29.1 % agreed
15.6 % strongly agreed, 42.7 % disagreed, and 7.8 % strongly disagreed while 5.8 % were
unsure (Table 4.3). There was division on this issue as some of the respondents did not know
whether the county government has enough staff.
On the ability of the staff to meet the targets, 44.6 % agreed, 12.6 % strongly agreed, 33.0 %
disagreed, 4.9 % strongly disagreed while 4.8 % were unsure (Table 4. 4).There was again
division on this issue. A higher percentage either agreed or strongly agreed (57.4 %)
compared to 37.9% who either disagreed or strongly disagreed.
On whether the staffs were conversant with the approved fees and charges, 8 (7.8%) strongly
disagreed, 20 (19.5%) disagreed, 3 (2.9%) were unsure, 52 (50.6%) agreed, while 20 (19.5%)
strongly agreed. (Table 4.5)
On community involvement, over 71.8% (80 of the 103) either disagreed or strongly
disagreed that the community is involved, those who were unsure, agreed or strongly agreed
were 28.2%. This shows that the majority believed that the community is not involved in the
setting up of fees and charges. This could be the reason why they do not pay the fees and
charges levied against them. (Table 4.6)
On community sensitization on the need to pay taxes, at least 35.4% (35) disagreed, 5 (4.8%)
were unsure while the majority at least agreed at 59.8 % (62). This means that there is urgent
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need to create awareness to the community on the importance and need to pay taxes;
essentially, there is much that is currently being done to ensure that the community is aware;
(see Table 4.7)
The majority of the respondents indicated that there wasn‟t a good relationship between the
community and the County government as at least 49.5 % disagreed, 6.7 % were unsure, 36.0
% agreed while only 7.8 % strongly agreed. (Table 4.8).
Over 46.56% (47) of the respondents at least disagreed that the community was involved in
budgeting. Those who at least agreed were the majority at 53.4%. (Table 4.9)
A total of 53.4% (55) of the respondents were unsure, disagreed or strongly disagreed that the
county government had trained staff on county government policy. 48 (46.6%) at least agreed
that the County government had trained its staff on County government, (Table 4.10)
It was indicated that over 64.8 % at least agreed that the County Government follows policy
guidelines, at least 27.7% disagreed and 7.8% were unsure. This shows that the county
government, to a large extend follows its policy, (Table 4.11).
The majority, 89.7%, at least indicated that the County Government had policies and
strategies to enhance revenue collection. The remaining 10.7% were either unsure or at least
disagreed. This implies that there are policies and strategies to enhance revenue collection,
(Table 4.12).
The majority blamed government policies as wetting limitation. This was represented by over
77.7%. 22.3% were either unsure, or at least disagreed. The majority of the respondents felt
like the County government policies were a major limiting factor, (Table 4.13).
50.5% of the respondents at least agreed that the policies were clear. 5.2% strongly disagreed,
28.7% disagreed while 25.2% were unsure. This shows that the respondents understood the
policies as they were clear to them (Table 4.14).
To deal with the issue of corruption, a number of issues were sought from the respondents.
These included whether there was corruption; if it affected revenue collection; if there were
measures to stop it; if action was taken against corruption cases and if there was a complains
handling mechanism.
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49.4% at least indicated that there was corruption in revenue collection, 18.7% were unsure,
26.8 % disagreed while only 4.8% strongly disagreed. There was no clear cut indication on
this issue, (Table 4.15).
Over 73% agreed that corruption affected revenue collection; less that 11.9% were either
unsure or at least disagreed. It was unanimous that corruption affects revenue collection in
the county government, (Table 16).
75.5% indicated that there were measures being taken to stop corruption, 6.8% strongly
disagreed, 9.7% disagreed, while 7.7% were unsure. From the response, there are measures
being taken to stop corruption. (Table 4.17)
Those who were of the opinion that action was being taken against the corruption related
cases were 64.5%, 35.5% were either unsure or were of the converse opinion (Table 4.18).
That there were complaints handling mechanism in the County Government was at least
agreed upon by 53.4%, 11.6% were unsure, 28.2% disagreed while 6.8% strongly disagreed.
The majority hence indicate that there is a complaints mechanism, (Table 4.19).
It was unanimous that the council had by-laws; 58.4% agreed while 41.6% strongly agreed,
(Table 4.20).
Those who agreed that staff members had been trained on laws were 56.3%. 10.6 % were
unsure while at least 33% disagreed (Table 4.21).
There was division with 50.5% at least agreeing that there was enough staff while the rest
were of the opinion that they were unsure 7.8%, disagreed 27.1% and 14.5% strongly
disagreed, (Table 4.22).
There was 80.6% agreement that the County Government at least enforces the laws; 2.9%
were unsure, 14.6% at least disagreed while only 1.9% strongly disagreed. This means that
the majority believe that the county government enforces the laws, (Table 4.23).
The enforcement department was not effective 36.8.3%, 15.5% were unsure while 48.7%
agreed with this view, (Table 4.24).
76.2 % agreed; 31% strongly so, 23.9% either disagreed or strongly disagreed, (Table 4.25).
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That the rewards were insufficient was 40.0%, 8.0% were unsure while at least 15% agreed
as shown ( Figure 4.1,Table 4.26).
Over 77.6% at least disagreed that there was objectivity and fairness in rewards and
remuneration. 5.8% were unsure, 14.5% agreed while only 12.1% strongly agreed. This
means that the majority feel that there is no objectivity and fairness in rewards and
remuneration, (Table4.27).
Given the information, the county has high potential for revenue collection.
There was a consensus that the County Government had performed poorly in terms of
revenue collection. This had been shown by the many cut programmes and services, there
was no potential for offering new or improved services; reduced visibility and accountability
for the staff that were responsible for revenue generation and collection; lack of
opportunities to make the overall revenue structure more equitable and efficient and there
was more dependent on just a few revenue sources; poor identification of user charges and
fees that may not be covering the cost of service to the extent required by the county‟s
financial policies; there were weaknesses in the county‟s financial management procedures
or organization and it was not easy to reveal areas of future concern to assist in budgeting and
forecasting.
The following were the factors that were identified as affecting revenue collection in
Kakamega County:
i. Failure to educate and sensitize taxpayers about benefits of paying taxes leads to low
local revenue collected.
ii. Lack of sufficient supervision during revenue collection leads to low local revenue
collected.
iii. Incompetent staffs that cannot follow and understand the rules and regulations set by
the County Government.
iv. Failure to follow rules and regulations of collecting revenues leads to low local
revenue collected.
v. Fraud and embezzlement of revenues collected leads to low local revenues collected.
vi. Community non-involvement in the setting of the fees and charges lead to greater
resistance in the payment of the same.
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vii. Tax defaulters due failure of being sensitized and educated about the importance of
paying taxes.
viii. Tax defaulters who are not followed.
ix. Service delivery where there is no commensurate service, the tax payers relax or
refuse to pay for taxes.
On the revenue sources available to Kakamega County, the following sources were
mentioned : rates and rents, licences, service charges, warranties, fines and penalties, capital
grants from government, national transfer loans, sale of capital assets, betterments and special
assessment financing (dedicated tax), public-private partnerships e.t.c
Budget expenditure management: Discretion to allocate/reallocate budgeted administrative
funds across administrative functions to meet emerging/changed priorities. In practice, this
power should enable the revenue body to use its resources more wisely, obtaining better
value for money spent.
Organization and planning: Responsibility for the internal organizational structure for
conducting tax administration operations, including the size and geographical location of tax
offices, and the authority to formulate and implement the revenue body„s strategic and
operational plans. The effective exercise of these powers in practice could be expected to
enable a revenue body to respond more rapidly to changed circumstances, thereby
contributing to its overall efficiency and effectiveness.
Performance standards: Discretion to set its own administrative performance standards (e.g.
for taxpayer service delivery); effective use of this power enables revenue body management
to set challenging but realistic targets for improved performance. Personnel recruitment,
development, and remuneration: The ability to set academic/technical qualification standards
for categories of recruits, and to recruit and dismiss staff, in accordance with public sector
policies and procedures; the ability to establish and operate staff training/development
programs; and the ability to negotiate staff remuneration levels in accordance with broader
public sector-wide policies and arrangements. In practice, effective use of these powers
should enable the revenue body to make more effective use of its human resources.
Information technology: Authority to administer its own in-house IT systems, or to outsource
the provision of such services to private contractors. Given the ubiquity of technology in tax
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administration, effective use of this responsibility could contribute enormously to overall
organizational performance (including responsiveness).
Tax law interpretation: The authority to provide interpretations, both in the form of public
and private rulings, of how tax laws was interpreted, subject only to review by judicial
bodies. The proper exercise of this power could in practice be expected to help taxpayers by
clarifying the application of the law and how it was administered.
Enforcement: The authority to exercise, without referral to another body, certain enforcement
powers associated with administration of the laws (e.g. to obtain information from taxpayers
and third parties, to impose liens over property in respect of unpaid debts, and to collect
monies owing by taxpayers from third parties). The proper exercise of this power enables
revenue bodies to respond. Set up executive committees or senior management teams
responsible for high level policy guidance and decision-making. These committees are
chaired by the head of the revenue administration.
Develop a consolidated corporate governance policy/code that guides decision-making and
outlines processes and acceptable practices for executing functions. Set human resource and
disciplinary committee as semi-autonomous revenue bodies. Establish an internal audit
department responsible for internal control and ensuring that procedures are being followed
by all staff.
The head of the Internal Audit department to be reporting directly to the board, and only
operationally to the head of revenue administration. The county to be subjected to external
review by either public (office of the auditor general) or private auditors or both, and to be
publishing audited accounts for accountability and transparency.
Set up corruption prevention units; Establish internal affairs units to be responsible, for
investigating corruption and fraud among employees of the organization. Establish the head
of the Internal Affairs department or its equivalent to head revenue administration. Develop
codes of ethics/conduct to promote integrity and prevent corruption involving its employees.
Implementation of these codes to be coordinated by corruption- prevention and/or internal
affairs units. The human resource department to coordinate integrity programs including the
implementation of the ethics codes.
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Ordinal Regression Results
There were important predictors of the outcome variable (maximization of revenue
collection). Under the descriptive analysis outlined above, the predictors individually had
some levels of association with the outcome variable. The predictor variables included in the
model were: staff competence, community involvement, government policy, corruption,
council by-laws and staff remuneration. The outcome variable was maximization of revenue
collection and was categorical with five levels of measure (Strongly disagree, Disagree,
unsure, agree and strongly agree). All the predictor variables were categorical data.
The study sought to find out if the model provided adequate predictions. This was done by
examining the Model-Fitting Information table. The significant chi-square statistic (< 0.05)
was used.
The study established that staff competence does influence revenue maximization. The
significance level for the chi-square statistic was less than 0.05 (0.000) as indicated in the
model fitting information hence the study rejected the null hypothesis (staff competence does
not influence revenue maximization). Table 4.28
The study established that community involvement does influence rev. The significance level
revenue maximization for the chi-square statistic was greater than 0.05 (0.000) as indicated in
the model fitting information hence the study rejected the null hypothesis which states that
community involvement has no influence in revenue collection, Table 4.29
The study established that government policy does influence revenue maximization The
significance level for the chi-square statistic greater than 0.05 (0.000) as indicated in the
model fitting information hence the study rejected the null hypothesis which states that
government policy does not influence revenue maximization, Table 4.31
The study established that corruption does influence revenue maximization The significance
level for the chi-square statistic greater than 0.05 (0.000) as indicated in the model fitting
information hence the study rejected the null hypothesis which states that corruption does not
influence revenue maximization, Table 4.32
The study established that council by-laws does influence revenue maximization The
significance level for the chi-square statistic greater than 0.05 (0.000) as indicated in the
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model fitting information hence the study rejected the null hypothesis which states that
council by-laws does not influence revenue maximization, Table 4.33
The study established that staff remuneration does influence revenue maximization The
significance level for the chi-square statistic greater than 0.05 (0.000) as indicated in the
model fitting information hence the study rejected the null hypothesis which states that staff
remuneration does not influence revenue maximization. Table 4.34.
SUMMARY OF THE FINDINGS, CONCLUSIONS AND
RECOMMENDATIONS
The study established that staff competence, community involvement, government policy,
corruption, council by-laws and staff remuneration revenue maximization hence the study
rejected the null hypotheses
In terms of staff competence, it was clear that 93.8% of the respondents at least agreed that
staff knowledge affects revenue collection. It is equally to note that 6.2 % of the respondents
on the other hand disagreed that it does influence revenue collection. With qualified staff,
30.3 % agreed, 2.9 % strongly agreed, 44.2 % disagreed, 10% strongly disagreed while
12.6% were strongly disagreed that the council had qualified staff.
It was also evident in the study that whether the local authority does not have enough staff
for revenue collection as over 55.5% of the respondents were either unsure disagreed or
strongly disagreed. Only 44.5% at least agreed 29.0 % agreed15.5 % strongly agreed that
they had enough staff. The local authority staff had the ability to meet the revenue target as at
least 54.8% of the respondents had indicated.
The majority of staffs were conversant with the fee and charges of the County Government at
70.9%. The community is rarely involved in fee and charges setting (71.5%). The community
is not sensitized on the need to pay taxes and this contributes to the poor revenue collection.
There was not a good relationship between the community and the local authority at 56.1% of
the respondents were either unsure or disagreed when asked whether there was a good
relationship. The community was involved in the budgeting process as indicated by 53.7% of
the respondents.
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The study also indicated that the local authority staff had not been trained on government
policy at 53.5%. On policy guideline, 64.9% agreed that the local authority follow policy
guidelines, at least 27.7% disagreed and 7.4% were unsure. That the local authority policies
and strategies was unanimous: 89.7%, at least indicated that the local authority had policies
and strategies to enhance revenue collection. The government was a setting limitation as the
majority 77.1% indicated. 22.8% were either unsure, or at least disagreed. The respondents
were divided on the clarity of the policies with 50.9% agreeing while the remaining either
disagreed or were unsure of the clarity.
On corruption in revenue collection, it was not clear as the only 49.4% either agreed or
strongly agreed while the remaining 50.6% either were unsure, disagreed or strongly
disagreed. That corruption affected revenue collection was 89.8%. 75.4% indicated that there
were measures being taken to stop corruption, that action was being taken on the corruption
related cases was 64.5% and 52.5% indicated that there was a complaints handing mechanism
in the local authority.
On by-laws, 100% were aware of their existence, 56.8% had been trained on the by-laws,
50.6% said there was enforcement staff, 80.3% agreement that the council enforced the by-
laws though not effectively at 47.3%.
On staff remuneration, the promptness was 76.2% -very high though the rewards and
incentives were insufficient at 77.1%, lacked objectivity and fairness at 77.4%.
The performance of the County Government in the previous four years had been wanting as
indicated by the many cut programmes and services, lack of improvement on services, lack of
accountability of the revenue collecting staff, inequitable and insufficient revenue collection
structure that was dependent on only a few sources; weakness in the financial management
procedures and policies.
Revenue collection was deemed to be affected by 1) failure to educate and sensitize taxpayers
about benefits of paying taxes leads to low local revenue collected, 2) insufficient supervision
during revenue collection; 3) Incompetent staffs that cannot follow and understand the rules
and regulations set by the council 4) Fraud and embezzlement of revenues collected leading
to low local revenues collected5) employees who could not follow rules and regulations of
collecting revenues leads to low local revenue collected 6) Community non involvement in
International Journal for Management Science and Technology (IJMST) Vol. 2; Issue 4
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the setting of the fee and charges that lead to greater resistance in the payment of the same 7)
Tax defaulters due failure of being sensitized and educated about the importance of paying
taxes 8) Tax defaulters who are not followed and 10) poor service delivery where there is no
commensurate service, the tax payers relaxes or refuse to pay for taxes
From the study, various conclusions are drawn. Kakamega County has great potential to
maximize revenue collection. This potential can be enhanced through improved staff
competence, community involvement, government policy, reduced corruption, ensuring that
council by-laws exist are implemented. Kakamega County had performed poorly for the past
four years due to the issues that had been mentioned. Improvement on these issues would
greatly enhance revenue collection in the county.
In light of the above findings, the study makes the following policy and suggestions for
further research recommendations.
The county to ensure that that there are clear policies that will help recruit competent staff,
provide them with sufficient remuneration, training on local authority issues and policies,
inculcate a sense of integrity and have objectivity in the rewarding and incentives for the
employees.
There should be clear revenue collection policies that are understood and enforce by the local
authority. Policies should be formulate that will not only involve the community but ensure
that there is good relationship with the local authority.
There should be strict revenue collection policies. Defaulters should be penalised to deter
other from following in the footsteps others. There should be policies formulated to increase
the tax bases so that a number of flexible and elastic revenues can be introduced. It is
necessary to come up with policies that will reduce or eliminate corruption in revenue
collection in the County Government in the county.
The community to be involved in the budgeting and setting of fees and charges process.
There should be by-laws that can be fully understood not only by the employees but by the
community at large.
Community sensitization on their role in revenue collection should not be optional. It should
be the duty of the county to ensure that the community is aware of their role and actively
International Journal for Management Science and Technology (IJMST) Vol. 2; Issue 4
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participate in the revenue collection. There should be established a section in the County
Government that specifically deal with research and development so as to come up with way
and means of improving and increasing revenue in the county.
Service delivery should be commensurate with the taxes that people pay. This was an
incentive for people to pay their taxes.
The study was limited to analysing factor affecting revenue maximization in County
Government in Kakamega County. More research can be done on the individual variables of
this study. These include examining the revenue potential for County Government in
Kakamega County; assessing the performance of Local Authority for the last four years i.e
between 2009 and 2012; analysing examining ways of improving effectiveness and
maximization of revenue collection in Kakamega County; assessing the effect of service
delivery on revenue collection and vice-versa.
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Association of Local Government Authorities of Kenya. (2003).Understanding County
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Auerbach, A. (2009).Public Finance in Practice and Theory. University of California,
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Brondolo, J. (2008). Tax Administration Reform and Fiscal Adjustment:
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Fjeldstad.O,(2009). New Challenges for Local Government Revenue Enhancement
in Tanzania.Tanzania: Mkuki Nyota Publications
Garnache,J. & Vyver, P. (2010). Financial Self-Evaluation Guide for County
Government, France: UCLG
Hamisi M, (2009). Understanding the Local Government System in Kenya a
Citizen’s Handbook, Institute of Economic Affairs, Nairobi
Hindriks J., Keen M.and Muthoo. A, (1999).Corruption, Extortion and Evasion‟
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Institute of Economic Affairs. (2005). what Next for Kenya’s County Government?
Nairobi: The Point.
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Kaldor, N. (1963). Taxation for Economic Development. The Journal for Modern
African Studies.
Kenya Local Government Reform Programme. (2001). The Context and Rationale for
Property Tax Reform, Ministry of Local Government.
Kenya Local Government Reform Programme. (2009). Revenue Enhancement Manual
for County Government, Ministry of Local Government
Kerlinger, F.N (1973).Foundation of behavioral research. New York: Holt, renehart
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Kimmel, A. 1988.Ethics and Values in Applied Social Research: California Sage
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Ministry of Local Government (2012) Budget Guidelines for County Government,
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Mugenda,O.M, and Mugenda,A.G.(1999). Research methods: quantitative and
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Republic of Kenya, (1986). The Rating Act Cap 267; Laws of Kenya; Revised edition
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United States Agency for International Development (2001). Strengthening
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APPENDECES; FIGURES AND TABLES
Table: 3.1 Sampling Procedure
Table 1.1: Staffs know all the sources of revenue of the local authority
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Disagree 14 13.5 13.5 13.5
unsure 2 2.0 2.0 15.5
Agree 59 57.3 57.3 72.8
Strongly
agree 28 27.2 27.2 100.0
Officers Target population Sample size
Clerks to the sub-counties 13 3
Treasurers 13 3
Revenue officers 13 3
Rates officers 13 3
Licensing officers 13 3
Market masters 34 10
Social Welfare Officer 13 3
Senior Revenue Clerks 30 10
Town engineers 13 3
Town planners 13 3
Revenue collectors 216 72
TOTALS 384 116
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Total 103 100.0 100.0
Table4.2: The county government has enough qualified staff
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 10 10.0 10.0 10.0
Disagree 46 44.6 44.6 54.6
unsure 13 12.6 12.6 67.2
Agree 30 30.0 30.0 97.2
Strongly agree 3 2.9 2.9 100.0
Total 103 100.0 100.0
Table 4.3: The county government has enough staff for revenue collection.
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 8 7.8 7.8 7.8
Disagree 44 42.7 42.7 50.5
unsure 6 5.8 5.8 56.3
Agree 30 28.1 28.1 84.4
Strongly agree 16 15.6 15.6 100.0
Total 103 100.0 100.0
Table 4.3: The county government has enough staff for revenue collection.
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 8 7.8 7.8 7.8
Disagree 44 42.7 42.7 50.5
unsure 6 5.8 5.8 56.3
Agree 30 28.1 28.1 84.4
Strongly agree 16 15.6 15.6 100.0
Total 103 100.0 100.0
Table 4.4: The staffs are able to meet targets
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Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 5 4.9 4.9 4.9
Disagree 34 33.0 33.0 37.9
unsure 5 4.8 4.9 42.8
Agree 46 44.6 44.6 87.4
Strongly agree 13 12.6 12.6 100.0
Total 103 100.0 100.0
Source: Researcher (2014)
Table 4.5: The staffs are conversant with approved fees and charges
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 8 7.8 7.8 7.8
Disagree 20 19.4 19.4 27.2
unsure 3 2.9 2.9 30.1
Agree 52 50.4 50.4 80.5
Strongly agree 20 19.5 19.5 100.0
Total 103 100.0 100.0
Table 4.6: The community participates during setting of fees and charges
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 16 15.5 15.5 15.5
Disagree 58 56.3 56.3 71.8
unsure 6 5.8 5.8 77.6
Agree 13 12.6 12.6 90.2
Strongly agree 10 10.0 10.0 100.0
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Total 103 100.0 100.0
Table 4.7: The community is sensitized on the need to pay taxes of a local authority
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 19 18.4 18.4 18.4
Disagree 18 17.4 17.4 35.4
unsure 5 4.8 4.8 40.2
Agree 47 45.6 45.6 85.6
Strongly agree 15 14.4 14.4 100.0
Total 310 100.0 100.0
Table 4.8: The community has good relations with the County government
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 8 7.8 7.8 7.8
Disagree 43 41.7 41.7 49.5
unsure 7 6.7 6.7 56.2
Agree 37 36.0 36.0 92.2
Strongly agree 8 7.8 7.8 100.0
Total 103 100.0 100.0
Table 4.9: The community is involved in the budgeting process
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 15 15.45 15.45 15.45
Disagree 32 31.1 31.1 46.56
Agree 29 27.2 27.2 73.76
Strongly agree 28 27.2 27.2 100.0
Total 103 100.0 100.0
Source: Researcher (2014)
Table 4.10: The local authority has trained staff on government policy
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Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 5 4.9 4.9 4.9
Disagree 44 42.7 42.7 47.6
unsure 6 5.8 5.8 53.4
Agree 43 41.7 41.7 95.1
Strongly agree 5 4.9 4.9 100.0
Total 115 100.0 100.0
Table4.11: The County Government follows policy guidelines
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 10 10.0 10.0 10.0
Disagree 18 17.4 17.4 27.4
unsure 8 7.8 7.8 35.2
Agree 54 52.4 52.4 87.6
Strongly agree 13 12.4 12.4 100.0
Total 103 100.0 100.0
Source: Researcher (2014)
Table 4.12: The County Government has policies and strategies to enhance revenue
collection
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 3 2.9 2.9 2.9
Disagree 5 4.9 4.9 7.8
unsure 3 2.9 2.9 10.7
Agree 69 66.9 66.9 77.6
Strongly agree 23 22.4 22.4 100.0
Total 103 100.0 100.0
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Table 4.13: There are instances of limitations set by County government policy
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly
disagree 3 2.9 2.9 2.9
Disagree 7 6.8 6.8 9.7
unsure 13 12.6 12.6 22.3
Agree 62 60.2 60.2 82.5
Strongly agree 18 17.5 17.5 100.0
Total 103 100.0 100.0
Table 4.24: Policies are clear
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 5 4.9 4.9 4.9
Disagree 30 29.1 29.1 34.0
unsure 16 15.5 15.5 49.5
Agree 42 40.7 40.7 90.2
Strongly agree 10 9.8 9.8 100.0
Total 103 100.0 100.0
Table 4.153: There is corruption in revenue collection
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 3 4.8 4.8 4.8
Disagree 28 27.2 27.2 32.0
unsure 19 18.4 18.4 50.4
Agree 41 39.8 39.8 90.2
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Strongly agree 10 9.8 9.8 100.0
Total 103 100.0 100.0
Table 4.16: Corruption affects revenue collection
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 2 2.3 2.3 2.3
Disagree 5 4.8 4.8 7.1
unsure 5 4.8 4.8 11.9
Agree 63 61.2 61.2 73.1
Strongly agree 28 27.0 27.O 100.0
Total 103 100.0 100.0
Source: Research (2013)
Table 4.17: There are measures to stop corruption
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 7 6.8 6.8 6.8
Disagree 10 9.7 9.7 16.5
unsure 8 7.7 7.7 24.5
Agree 65 63.1 63.1 87.6
Strongly agree 13 12.7 12.7 100.0
Total 103 100.0 100.0
Table4.4: Action is taken on alleged corruption related cases
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 14 4.5 4.5 4.5
Disagree 73 23.5 23.5 28.1
unsure 23 7.4 7.4 35.5
Agree 177 57.1 57.1 92.6
Strongly agree 23 7.4 7.4 100.0
Total 310 100.0 100.0
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Source: Researcher (2014)
Table 5: The County Government has a complaints handling mechanism
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 7 6.8 6.8 6.8
Disagree 29 28.2 28.2 35.0
unsure 10 11.6 11.6 46.6
Agree 46 44.7 44.7 91.3
Strongly agree 9 8.7 8.7 100.0
Total 103 100.0 100.0
Table 4,20: The County Government has its laws
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Agree 43 41.7 41.7 41.7
Strongly
agree 60 58.3 58.3 100.0
Total 103 100.0 100.0
Table 6: Staffs have been trained on county laws
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 18 17.5 17.5 17.5
Disagree 15 15.5 15.5 33.0
unsure 11 10.6 10.6 43.6
Agree 40 38.8 38.8 82.4
Strongly agree 18 17.6 17.6 100.0
Total 103 100.0 100.0
Table4. 7: There is an enforcement department with enough staff
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 15 14.5 14.5 14.5
Disagree 28 27.1 27.1 41.6
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unsure 8 7.8 7.8 49.5
Agree 42 40.7 40.7 90.2
Strongly agree 10 9.8 9.8 100.0
Total 103 100.0 100.0
Table 4.23: The County government enforces the laws
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 2 1.9 1.9 1.9
Disagree 14 14.6 14.6 16.5
unsure 3 2.9 2.9 19.4
Agree 69 67.0 67.0 86.4
Strongly agree 14 13.6 13.6 100.0
Total 103 100.0 100.0
Table 8: The enforcement department (if any) is effective
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 5 4.8 4.8 4.8
Disagree 33 32 32 36.8
unsure 16 15.5 15.5 51.3
Agree 39 37.9 37.9 89.2
Strongly agree 11 10.8 10.8 100.0
Total 103 100.0 100.0
Table 4.25: Salaries are paid promptly
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 7 6.8 6.8 6.8
Disagree 17 16.5 16.5 23.3
Agree 46 44.7 44.7 68.0
Strongly agree 33 32.0 32.0 100.0
Total 103 100.0 100.0
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Figure 4.1: Sufficient rewards and incentives are in place and awarded.
Source: Research (2014)
Table4. 97: Rewards and remuneration are awarded objectively and fairly
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid Strongly
disagree 31 30 30 30.0
Disagree 49 47.6 47.6 77.6
unsure 6 5.8 5.8 83.4
Agree 15 14.5 14.5 97.9
Strongly agree 12 12.1 12.1 100.0
Total 103 100.0 100.0
Table4.28: Model Fitting Information on Staff competence and revenue maximization
Model -2 Log Likelihood Chi-Square Df Sig.
Intercept Only 566.496
Final .000 566.496 11 .000
Link function: Logit.
Table 4.29: Model Fitting Information on Community involvement and revenue
maximization
Model -2 Log Likelihood Chi-Square df Sig.
Intercept Only 699.000
Strongly disagree
32%
Disagree45%
unsure8%
Agree8%
Strongly agree7%
Sufficiency of rewards and Incentives
International Journal for Management Science and Technology (IJMST) Vol. 2; Issue 4
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Final 83.662 615.338 15 .000
Link function: Logit.
Table4.31: Model Fitting Information Government policy and revenue maximization
Model -2 Log Likelihood Chi-Square Df Sig.
Intercept Only 667.876
Final .000 667.876 14 .000
Link function: Logit.
Table 4.32: Model Fitting Information corruption and revenue maximization
Model -2 Log Likelihood Chi-Square Df Sig.
Intercept Only 595.254
Final 345.326 249.929 16 .000
Link function: Logit.
Table 10: Model Fitting Information council by-laws and revenue maximization
Model
-2 Log
Likelihood Chi-Square Df Sig.
Intercept Only 723.361
Final 588.896 134.465 10 .000
Link function: Logit
Source: Research (2014)
Table 4.11: Model Fitting Information Staff remuneration and revenue maximization
Model -2 Log Likelihood Chi-Square Df Sig.
Intercept Only 532.785
Final 406.377 126.407 5 .000
Link function: Logit.
International Journal for Management Science and Technology (IJMST) Vol. 2; Issue 4
ISSN: 2320-8848(O.)/2321-0362(P.) Page 104 April, 2014
Rowley, Jennifer. (2005). The four Cs of cusr loyalty. [Database] Marketing
Intelligence & Planning. DUFE Library, Dalian. Assessed 12, Apr. 2009. [Online]
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