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Carol Ntinyari Muriungi - Master of Science in Finance and Investment (MFI), Kenya Methodist University, Kenya

Matu Waithaka - Kenya Methodist University, Kenya

Elizabeth Were - Kenya Methodist University, Kenya

Moses Muriuki - Kenya Methodist University, Kenya


Financial stability plays an important role in economic growth and leads to sustained development. As such, financial stability is gradually emerging as a distinct policy function Garry J. Schinasi (2006). A large number of studies on risk management have been carried out on performance of banks and insurance but little has been studied on effects of risk management on financial stability in State Corporation in Kenya. This study aimed at addressing the challenge of ever emerging risks within the State Corporation. The study, therefore, would fill the gap in knowledge about the possible existence of a relationship between risk management practices and financial stability in State Corporations in Kenya and the nature of the relationship. The aim of the study was to determine the effect of risk management on financial stability of state corporations in Kenya. This study was quantitative in nature and employed an explanatory research design. This was because the study intended to provide an understanding of the relationships among the research variables. The study concentrated on only tourism sector state corporations because it was expected that the players had the relevant and accurate information needed in this study. This study used a purposive sampling design to select 2 state corporations in the tourism sector from a total of 187 state corporations. Descriptive and inferential statistics were used to analyze information generated from respondents. In order to ensure ethical considerations were maintained, the identities of respondents filling the questionnaires were kept anonymous by not requiring them to indicate their names on the questionnaires. The study found out that in financial risk management; credit default risk management facilitate financial stability in the corporation, the process of financial risk management is continuous in state corporations, and that state corporations have put in place measures to mitigate liquidity risk. The respondents further indicated that financial risk management could be improved through diversification, investing sooner than later and learning about Investments. The study revealed that in terms of operational risk management; Controls were in place to evaluate the efficiency of operational risk management in the state corporation, People risk was a continuous risk in state corporations, a lot of organization resources had been directed to information technology risk management, Operational risk is highly appreciated in the state corporations. It was also noted that through operational risk management, a corporation could carry out risk-audit activities, assessments of operational risks and prepare recommendations for risk mitigation. It was noted that majority of the respondents were of the view that in terms of marketing risk management; Foreign exchange risk is one of the most complex areas of risk management in state corporations in Kenya, financial stability in state corporations can be improved by management of interest rate risk, market risk management is a continuous process in the organization and current approaches to equity risk management in state corporations are fit for purpose. The study found out that strategic risk management is crucial for success of any state corporation, strategic risk management process enhances financial stability, Corporate governance risk management in place are satisfactory and the organization is quick and flexible to identify and tackle innovation risks. The study also found out that financial risk management, operational risk management, market risk management and strategic risk management influenced financial stability in state corporation (r2 = 73.9%).  In conclusion, the proposed framework of the study was able to demonstrate strong explanatory power with financial risk management, operational risk management and strategic risk management emerging as a stronger predictor of financial stability in State Corporations in Kenya.

Full Length Research (PDF Format)