MODERATING EFFECTOF CORPORATE GOVERNANCE ON THE RELATIONSHIP BETWEEN STRATEGIC MANAGEMENT PRACTICES AND OPERATIONAL PERFORMANCE OFCOMMERCIAL STATE CORPORATIONS IN KENYA

Abstract

The linkage between strategic management and organizational performance is a fundamental concern for public sector entities operating in a dynamic business landscape. Effective strategic management has been recognized as enhancing the performance of public organizations, while new perspectives further underscore the role of corporate governance in improving public sector performance. However, there is a gap in establishing the complex nexus among these three constructs of strategy, governance, and performance in one model, given that previous studies have examined these parameters as independent constructs; hence, there is a lack of adequate empirical studies to further deepen comprehension of how they are correlated. This study, therefore, sought to fill the gap by elucidating their linkage and expanding the understanding of how corporate governance frameworks affect the influence of strategic management decisions on operational performance. The general objective of the study was to determine how corporate governance moderates the interaction between strategic management practices and the operational performance of commercial State Corporations in Kenya. The study was grounded in the Resource-Based View, Dynamic Capabilities theory, Stewardship theory, and Resource Dependency Theory. It targeted 317 respondents in top and middle-level management across the five key departments of 36 State Corporations. A stratified sample of 177 respondents was selected using the Yamane sampling technique and the Neyman allocation formula to ensure proportionality. Quantitative data were collected using a five-point Likert-scale structured questionnaire, which was reviewed for content validity using expert judgment and scored with a threshold of at least 0.8 and for reliability using the Cronbach’s Alpha method with the acceptable reliability threshold of at least 0.7. The questionnaire was also administered to18 random respondents at the Pyrethrum Board of Kenya and Kenya Power, the two commercial State Corporations proposed for pilot testing and excluded from the main study. Both descriptive and inferential statistical analyses were conducted, including correlation and moderated multiple regression analyses to assess the strength and direction of relationships among variables and to determine whether the moderating effect of corporate governance was statistically significant. The regression coefficients for all variables showed statistically significant positive impact on operational performance, including strategic planning (β1 = 0.513, p = 0.000); strategic leadership (β2 = 0.483, p = 0.000); strategic innovation (β3 = 0.442, p = 0.000); and strategic quality management (β4 = 0.545, p = 0.000). Statistics further revealed that while the direct effects of strategic management (β = -0.624, p = 0.062) and corporate governance (β = -0.473, p = 0.042) became negative, the interaction term was significantly positive (Unstandardized β=0.328, p = 0.002) (Standardized β = 1.203, p = 0.002), confirming the moderating role of corporate governance on the strategy-performance nexus. The study contributes new knowledge by demonstrating that organizations with similar strategic initiatives may achieve varied performance outcomes, revealing that this may be due to the quality of their governance structures, and underscoring the importance of an integrated approach to strategic management and corporate governance. It also provides insights to inform the revitalization of public strategy, the realignment of corporate governance, and the enhancement of performance. Future research should investigate the moderating effects of corporate governance across different categories of State Corporations and varied performance dimensions.