European Journal of Economic and Financial Research

ISSN: 2501-9430
ISSN-L: 2501-9430
Available on-line at: http://www.oapub.org/soc

DOI: 10.46827/ejefr.v7i1.1448 Volume 7 │ Issue 1 │ 2023

RELATIONSHIP BETWEEN LEAN ACCOUNTING

AND FINANCIAL PERFORMANCE OF COMMERCIAL
BANKS IN ELDORET TOWN, KENYA

K’Odongo K. Kairei,
Elson K. Kirui,
George M. Nduruchi
Jomo Kenyatta University
of Agriculture and Technology,
Kenya

Abstract:
Everybody working seriously to implement Lean Accounting concept in their company
eventually bumps up against their accounting systems. It soon becomes clear that
traditional accounting systems are actively anti-lean. Lean accounting refers to the
concepts designed to better reflect the financial performance of a company that has
implemented lean service processes. These may include organizing costs by value stream,
changing inventory valuation techniques and modifying financial statements to include
nonfinancial information (Alves, Vieira Neto, de Mattos Nascimento, de Andrade,
Tortorella, & Garza-Reyes, 2022). The study sought to establish whether Lean Accounting
influences the financial performance of Commercial Banks in Kenya. The study was
guided by the Lean Philosophy model. The study used a cross-sectional research design
and targeted employees working in all t8 commercial banks in Eldoret town, Kenya. A
census of the study population was conducted. Questionnaires were used as data
collection instruments. The data was analyzed using both inferential (multiple regression
and correlation) and descriptive statistics (frequencies, percentages, mean and standard
deviation) and was presented by the use of tables and charts. The study findings
indicated that the study variables Lean Accounting β = 0.209, p < 0.05 were significant to
financial performance. The results showed that Lean Accounting was a positive and
significant predictor of financial performance with (t = 3.250; ρ < 0.05). The study
recommended that the management of commercial banks in Kenya should strive to
maintain the current lean accounting practices and further increase or improve them in
order to enhance the banks’ value. They should also train staff on the use of Lean
Accounting techniques in order to be able to improve their performance.

i
Correspondances: email [email protected], [email protected],
[email protected]

Copyright © The Author(s). All Rights Reserved. 189

 K’Odongo K. Kaire, Elson K. Kirui, George M. Nduruchi
RELATIONSHIP BETWEEN LEAN ACCOUNTING AND FINANCIAL
PERFORMANCE OF COMMERCIAL BANKS IN ELDORET TOWN, KENYA

JEL: G20; G21; M40

Keywords: commercial banks, financial performance, Lean Accounting, Muda

Definition of Terms
Muda is a Japanese word meaning "futility; uselessness; wastefulness", and is a key concept
in lean process thinking (Maskell & Baggaley, 2006).

1. Introduction

Lean Accounting which refers to concepts designed to better reflect the financial
performance of a company that has implemented lean service processes. These may
include organizing costs by value stream, changing inventory valuation techniques and
modifying financial statements to include nonfinancial information (Adeyemi & Fagbemi
2010) a lean enterprise is focused on increased value to the customer, the elimination of
wasteful work and non-value-added activities, and increased throughput to create
opportunities for profitable growth. Because the focus of lean is on value, lean looks at
costing from the value stream, Lean Accounting techniques provide convenient methods
for calculating production costs by focusing on value flow rather than on products, and
that agile accounting tools support the assessment of the performance of economic units
at the cell level and the value flow of the economic unit as a whole (Abass, 2015).
Lacerda, Xambre, and Alvelos, (2016) assert that Lean Accounting can be stated as
"applying lean methods to the accounting processes." Some accounting processes contain
muda type 1 (waste that cannot be eliminated at the moment) but most accounting
processes are muda type 2 (waste that can be eliminated). The tools of lean must be
rigorously applied to our accounting, control, and measurement processes so that waste
is relentlessly driven out. This is achieved in the same way waste reduction is achieved
anywhere else, through continuously eliminating waste from the transaction processes,
reports, and accounting methods throughout the organization. The tools to achieve this
are the value stream maps (current and future state), kaizen (lean continuous
improvement), and the venerable Plan-Do-CheckAct (PDCA) problem-solving approach.
These improvements can be made early in the transformation to lean and will open up
time for the accounting personnel to work on other Lean Accounting changes. Inevitably
these early projects improve processes that will later be eliminated, but they make a good
start to the introduction of Lean Accounting into the business (Maskell & Baggaley, 2006).
Lean accounting reports and methods actively support lean transformation. This
information drives continuous improvement. The financial and nonfinancial reporting
reflects the overall value stream flow, not individual products, jobs, or processes. Lean
Accounting focuses on measuring and understanding the value created for the
customers, and uses this information to enhance customer relationships, product design,
product pricing, and lean improvement (Psomas, 2021).

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RELATIONSHIP BETWEEN LEAN ACCOUNTING AND FINANCIAL
PERFORMANCE OF COMMERCIAL BANKS IN ELDORET TOWN, KENYA

While Lean Accounting is still a work-in-process, there is now an agreed body of

knowledge that is becoming the standard approach to accounting, control, and
measurement. These principles, practices, and tools of Lean Accounting have been
implemented in a wide range of companies at various stages on the journey to lean
transformation. These methods can be readily adjusted to meet your company's specific
needs and they rigorously maintain adherence to GAAP and external reporting
requirements and regulations (Amusawi, Almagtome, & Shaker, 2019). Lean Accounting
is itself lean, low-waste, and visual, and frees up finance and accounting people's time so
they can become actively involved in lean change instead of being merely "bean counters."
(Ali, Khan, Shah, & Ahmad, 2021).
According to Maskell and Baggaley (2006), the principles, practices, & tools of
Lean Accounting include but are not limited to the following.

Table 1: The principles, practices, & tools of Lean Accounting

Principles Practices Tools of Lean Accounting
A. Lean & simple Continuously eliminate waste a) Value stream mapping; current & future
business from the transactions state.
accounting processes, reports, and other b) Kaizen (lean continuous improvement).
accounting methods c) PDCA problem solving
B. Accounting Management control & a) Performance Measurement Linkage Chart;
processes continuous improvement linking metrics for cell/process, value
that support streams, plant & corporate reporting to the
lean business strategy, target costs, and lean
transformation improvement.
b) Value stream performance boards
containing break-through and continuous
improvement projects.
c) Box scores showing value stream
performance
Cost management a) Value stream costing
b) Value stream income statements
Customer & supplier value • Target costing
and cost management
C. Clear & timely Financial reporting a) “Plain English” financial statements
communication b) Simple, largely cash-based accounting
of information Visual reporting of financial • Primary reporting using visual performance
& non-financial performance boards; division, plant, value stream,
measurements cell/process in production, product design,
sales/marketing, administration, etc.
Decision-making • Incremental cost & profitability analysis
using value stream costing and box scores
D. Planning Planning & budgeting a) Hoshin policy deployment
from a lean b) Sales, operations, & financial planning
perspective (SOFP)
Impact of lean improvement a) Value stream cost and capacity analysis
b) Current state & future state value stream
maps

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c) Box scores showing operational, financial,

and capacity changes from lean
improvement. Plan for financial benefit from
the lean changes
Capital planning • Incremental impact of capital expenditure
on value stream box-score. Often used with
3P approaches
Invest in people a) Performance measurements tracking
continuous improvement participation,
employee satisfaction, & cross-training
b) Profit sharing
E. Strengthen Internal control based on lean a) Transaction elimination matrix
internal operational controls b) Process maps showing controls and SOX
accounting risks
control Inventory valuation a) Simple methods to value inventory without
the requirement for perpetual inventory
records and product costs can be used when
the inventory is low and under visual
control.

2. Literature Review

Lean Accounting is the philosophy of recognizing and eliminating the non value-added
activities within the lean production system in order to reduce production costs (Monroy,
Nasiri, & Peláez, 2014). The lean thinking approach as a production system has been
developed by the Toyota Corporation in 50 sec in order to improve the production
processes and reduce costs by eliminating wastes. Lean Accounting is commonly
described as a five principles approach that aims to reduce the operating cost by
simplification of all production processes and waste removal (Gracanin et al., 2014). In
addition, accounting has been developed to help companies to overcome the problems of
the traditional costing accounting systems related to providing accounting information
for decision-making. It can provide different cost reports over the value stream on the
basis of separating the value-added and non-value-added activities (Haskin, 2010). These
reports can help managers identify the production costs that add value from customer
conception as well as revealing the wastes.
The costing accounting system plays an important role in improving financial
performance by providing useful information for decision-making regarding cost
management, pricing and product mix. However, most traditional cost accounting
systems do not cope with the information requirements for modem enterprise
management (Elsukova, 2015). The modem cost management requires detailed cost
information on the specific element of the production system could include capacity
utilization, idle capacity cost, unnecessary operations or activities. Therefore, the
selection of a suitable cost accounting system has been considered a challenge in most
enterprises because it has an effect on financial performance. In order to deal with these
challenges, managers tend to adopt the Lean Accounting approach that leads to the

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RELATIONSHIP BETWEEN LEAN ACCOUNTING AND FINANCIAL
PERFORMANCE OF COMMERCIAL BANKS IN ELDORET TOWN, KENYA

elimination of waste (Monroy et al., 2012). In this context, the implementation of Lean
Accounting allows companies to reduce production costs and gives them the incentive to
improve their financial performance by reducing the overall cost of activities (Aziz et al.,
2017). The focus of most prior studies has been on developing an accounting technique
to overcome the shortcomings of traditional costing systems and revealing the
determinants of financial performance in healthcare institutions, e.g., Van der Steen, &
Tillema, (2018), McCue, (2017), Gracanin, Buchmeister and Lalic, (2014), and Nattinger et
al. (2018).
Although the positive impact of Lean Accounting practices on financial
performance has been demonstrated in prior research, little attention has been paid to the
association between value stream costing and financial performance in various sectors.
The lack of attention is documented in the recent literature review carried by Barnes et al.
(2018) which indicates that there is limited research that emphasize financial performance
and quality performance in institutions.

2.1 Lean Philosophy Model

The model was coined by John Krafcik in 1988. The establishment of lean management
philosophy primarily considers the fundamental principles that inspire the development
and operations of a business enterprise, the nature and purpose of the business, its role
in society and moral obligations. Lean philosophy is important to an organization and its
management on the ground that it is an appellation that denotes a way of doing business
or the establishment of a business outlook (Mascitelli, 2011).
For many, lean is the set of tools that assist in the identification and steady
elimination of waste. As waste is eliminated quality improves while production time and
cost are reduced. A non-exhaustive list of such tools would include: SMED (Single-
minute exchange of die. It provides a rapid and efficient way of converting a service
process from running the current service to running the next service (Martin, Hiebl &
Christine, 2013).Value stream mapping (a lean-management method for analyzing the
current state and designing a future state for the series of events that take a product or
service from its beginning through to the customer ( Firk, Schrap & Wolff, 2016). There
are five 5S phases: They can be translated from Japanese as Sort, Set in order, Shine,
Standardize, and Sustain. It describes how to organize a work space for efficiency and
effectiveness by identifying and storing the items used, maintaining the area and items,
and sustaining the new order. The decision-making process usually comes from a
dialogue about standardization, which builds understanding among employees of how
they should do the work (Okpala, 2013). Kanban (queue limiter- Kanban is an inventory-
control system to control the supply chain. Taiichi Ohno, an industrial engineer at Toyota,
developed kanban to improve service efficiency. Kanban is one method to achieve (JIT),
(pull systems), poka-yoke (error-proofing), total productive maintenance, elimination of
time batching, mixed model processing, rank order clustering, single point scheduling,
redesigning working cells, multi-process handling and control charts for checking mura
(Mascitelli, 2011).

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Lean philosophy was relevant to this study because Lean Accounting when
applied to all departments of an organization leads to overall meaningful changes and
excellent results, it refines a company's operations, encourages finance department staff
to learn about Lean methods through actual hands-on experience and freeing up finance
department time by removing waste in the process. Additionally, the control of
production and other processes is achieved by visual performance measurements at the
shop-floor and value stream level (Ittner & Larcker, 2011). This measurement eliminates
the need for the shop-floor tracking and variance reporting favored by traditional
accounting systems.
The biggest criticism of lean philosophy is that the constant focus on improvement
and elimination of waste becomes an obsession and causes stress in the workforce. Lean
makes the workplace too clinical and impersonal, with workers under relentless pressure
to do better than before (Mascitelli, 2011). Another criticism of lean philosophy is the
over-focus on elimination of waste overriding other concerns. Lean strives to ensure
productivity and efficiency primarily through cutting flab, but in the process, ignores
other crucial parameters such as employee wellness, and corporate social responsibility.
A company, for instance, might recruit additional workers than necessary as part of its
corporate social responsibility necessary to establish good relationships with local
communities. Lean does not cater to such unconventional requirements (Elhamma &
Moalla, 2015).

3. Methodology

3.1 Research Design

A research design is an outline for the collection, measurement and analysis of data. It
guides the entire research process (Orodho, 2009). The study used a cross-sectional
research design. This is because such studies on Lean Accounting haven’t
been conducted more clearly, thus the researchers intended to establish priorities,
develop operational definitions and improve on the clarity of the previous studies. The
researchers also adopted this research design because of the scanty past data and just a
few studies for reference, Creswell & Plano (2011).

3.1 Population of the Study

Population refers to the entire group of individuals, objects or things that share common
attributes, from which the researchers seek to find information. The target population is
the entire group of individuals, objects or things that share common attributes and to
which results will be generalized (Kombo & Tromp, 2006). The target population for the
study was all management staff working in commercial banks in Eldoret town, Kenya
coming to a total of 130 respondents. The accessible population is a sub-set of the target
population which the research can access to be involved in the study. The accessible
population for this study was therefore the management cadre employees working in all
the 27 commercial banks in Eldoret town. This included the branch managers, operations

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and control managers and the bank accountants making a total of 130 respondents as
indicated in the Appendix below.

3.2 Census Survey

The study used census. This is because the researchers would have wished to do a more
generalised inference which a sample would not achieve. The census was also used so as
to get a total representation of the management view as opposed to just from a sample.
Therefore, all the 32 branch managers, 32 operations and control managers and 66
accountants totaling to 130 respondents were included in the study.

3.3 Data Collection Instruments

The study used questionnaires in order to gather primary data on value-based
management accounting. Questionnaires give respondent adequate time to give well
thought out answers. Bias from the respondents and researchers is also eliminated
(Orodho, 2009). This method collected a lot of information over a short period of time.
The method is suitable when the information needed can be easily described in writing
and there is limited time. In the study the respondents were given time to complete the
questionnaires before returning them for analysis. The questionnaires contained both the
structured and semi- structures parts. Secondary data was collected using documentary
analysis. Documentary analysis generally provides data source, which is available and
permanent in a way that can be examined by others (Kombo & Tromp, 2006).

3.4 Pre-testing of Research Instruments

Pilot study refers to a small-scale rehearsal of the research design. It enables testing of the
feasibility, instruments and methods (Orodho, 2009). A pilot study was conducted to test
the validity and reliability of the research questionnaire. It involved 10% of the size of the
sample population (Orodho, 2009). This equals to 13 respondents randomly drawn from
the management team of commercial banks in Kitale town. Participants in the pilot
testing were not involved in the final study.

3.5 Validity
Validity is the degree to which an instrument measures what it claims or purports to
measure. It is the accuracy, truthfulness and meaningfulness of inferences that are based
on the data obtained from a tool or a scale for each construct in the study (Kombo &
Tromp, 2006). Construct validity of research questionnaire was measured by the test
instruments in Kitale’s banks. Content validity on the other hand was ensured by
consulting the supervisor. This assisted in the evaluation of the concept the questionnaire
is trying to measure and to determine whether the set of items accurately represents the
concepts.

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3.6 Reliability
Reliability is the consistency with which a research instrument measures the construct or
content area it is intended to measure. It is reported as a coefficient ranging from 0.00
(low) to +1.00 (high). A coefficient above or equal to 0.70 is considered sufficient for most
cases (Orodho, 2009). Therefore, reliability of the questionnaire was tested using
Cronbach’s alpha coefficient where a threshold value of ≥ 0.7 was used.

3.7 Data Collection Procedures

After testing the validity and reliability of the research questionnaire, the researcher
sought the consent of Jomo Kenyatta University of Agriculture and Technology and the
management of commercial banks in Eldoret town. The research questionnaires were
then administered to the respondents by the researcher in person.

3.8 Data Processing and Analysis

The data collected was cleaned, edited, coded and stored before being analyzed. Both
descriptive and inferential statistics were used for data analysis. Descriptive statistical
tools included frequency, percentages, means, standard deviations and Variance.
Inferential statistics include Pearson Product Moment Correlation and multiple
regression analysis. Data was presented in tables.
The following regression model was used:

Y= α + β1X1 + ε…………………………….……………………………...………….Equation 3.1

Where, Y represents the dependent variable, α represents the constant, β1 represents the
coefficient of the independent variable, X1 represents the independent variable, and ε
represents the error term.

4. Results

4.1 Response Rate

The researcher administered questionnaires to 130 respondents and 106 duly filled
questionnaires were returned. This represents a response rate of 81.54 %. According to
Zikmund et al., (2010) observed that in descriptive research, a response rate of above fifty
percent (50%) is adequate for analysis, sixty percent (60%) good and seventy percent
(70%) and above to be very good. Thus, the response rate achieved in this study can be
considered sufficient to give the findings adequate reliability.

4.2 Reliability Test Results

Reliability is a measure of the consistency of the research instrument (Hair et al., 2007).
Reliability was tested using the Cronbach alpha coefficient. The reliability threshold was
alpha equal to or greater than 0.7. The results of the internal consistency of the research
instrument are as shown in Table 4.1

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RELATIONSHIP BETWEEN LEAN ACCOUNTING AND FINANCIAL
PERFORMANCE OF COMMERCIAL BANKS IN ELDORET TOWN, KENYA

Table 4.1: Cronbach’s Alpha Reliability

Variables Cronbach Alpha Coefficient Test Items
Lean Accounting 0.853 7

From Table 4.1, it is indicated that the reliability coefficients of the study variable, Lean
Accounting, was above 0.7. This implied that the research instrument was reliable. This
concurs with the suggestion made by Nunnally, (1978) that the internal consistency is
considered to be sufficient and adequate if it’s reliability value above 0.7.

4.3 Demographic Information

Background information is aimed at providing relevant information on the composition
of the respondents. The study grouped demographic information of the respondents in
terms of gender, age bracket, education level and service duration with the bank.

4.4 Gender of the Respondents

The study sought to establish the respondents’ gender. The results are presented in Table
4.2.

Table 4.2: Gender of the Respondents

Gender Frequency Percentage
Male 71 67
Female 35 33
Total 106 100

From the results in Table 4.2, 71(67%) were male and 35(33%) were female. This is a clear
indication that males form the majority of the managers and accountants in the banks.
Thus, the gender of the respondents could influence the findings as it was not fairly
balanced. This implies that the researcher was able to minimize the influence of gender
biasness by collecting data across all genders. This was interpreted to mean that the data
collected represented the views of both genders and hence was not biased despite the
disparities in the distribution which indicated that there were slightly more male than
female respondents.

4.5 Distribution of Respondents by Age Bracket

The study sought to establish the age bracket of the respondents. The results are
presented in Table 4.3.
From Table 4.3, the majority of the respondents 31(29.2%) lie between the ages of
41-45, followed by the age bracket 36-40 years, 30(28.3%). The age bracket 31-35 years
represented 24(22.6%) persons who responded. The age over 45 years came in fourth at
13 (12.3%) and lastly was the 26-30 years which was 8 (7.5%). This is a clear indication
that the people managing the bank branches in terms of operations and finances are
majorly middle-aged. However, it is important to note that a younger population is also
coming up with evidence of less than 30 years in the brackets of 26-30 years. Bass (2005)

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argues that age brings in experience, responsibility and skills. These findings imply that
majority of the people managing banks are energetic, very active, experienced,
responsible and skilled.

Table 4.3: Age Bracket

Age Brackets Age Percent
26-30 Years 8 7.5
31-35 Years 24 22.6
36-40 Years 30 28.3
41-45 Years 31 29.2
Over 45 Years 13 12.3
Total 106 100

4.6 Distribution of Respondents by Academic Qualifications

The study also sought to determine respondent’s education level. Table 4.4 shows the
results of the analysis.

Table 4.4: Level of Education

Level of Education Frequency Percent
Diploma 10 9.4
Degree 76 71.7
Masters 20 18.9
PhD 0 0
Total 106 100

The findings of the study in Table 4.4 indicated 10(9.4%) of the respondents had diploma
education, 76 or 71.7% (76) of the respondents were degree holders, and 20 or 18.9% were
Master’s degree holders. This implies that majority of the respondents had degree
qualification. That is satisfactory level of education that can comfortably facilitate proper
understanding of the research questionnaire.

4.7 Distribution of Respondents by Period Worked in the Firm

The study sought to find out the duration the respondents have been working since they
were employed. Table 4.5 shows the results of the analysis.

Table 4.5: Duration Worked

Service Duration Frequency Percent
Less than 1 2 1.9
2-3 Years 3 2.8
4-5 Years 13 12.3
6-7 Years 27 25.5
8-9 Years 42 39.6
Over 9 Years 19 17.9
Total 106 100

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It is evident from the findings in Table 4.5 that majority of the respondents 42
(39.6%) have been working in the firm for a duration of 8-9 years. Those who have
worked for between 6-7 years were 27(25.5%). Still again, findings show that a further 19
(17.9%) have worked in the banks for over 9 years while those who have worked in the
firm for between 4-5 years were 13(12.3%). The study also indicated that 3(2.8%) had
worked in the firm for a duration 2-3 years and that only 2 (1.9%) of the respondents had
less than one year experience working in the management of the bank. This implies that
the banks had attracted and retained skilled and capable management as evidenced by
their experience and the duration of the managers in the job. This is evidenced by the
duration worked in the firm which is usually in line with experience, responsibility and
skills of the various personnel person (Karanja, 2011).

5. Descriptive Findings and Discussions

This section illustrates descriptive findings and discussions based on the objective of the
study. The findings are presented in form of mean, standard deviations, and variances.
The responses are in line with a 5 Point Likert-Scale ranging from: Strongly Disagree = 1,
Disagree = 2 Undecided = 3, Agree = 4 and Strongly Agree = 5.
The researcher sought to determine the relationship between Lean Accounting
and the financial performance of commercial banks in Eldoret, Kenya. This helped to
establish the extent to which Lean accounting affects the financial performance of
commercial banks. Table 4.6 shows the results of Lean Accounting as found.

Table 4.6: Findings for Lean Accounting

Lean Accounting Statement N Min Max Mean SD Variance
Our bank has adequately adopted
106 1 5 4.18 0.68 0.46
the Five S model to improve the productivity
Our bank creates value for the customer by
106 1 5 4.15 0.71 0.50
drawing value flows to meet customer needs
Our bank organizes costs by value stream mapping
to make decisions to improve revenue and 106 1 5 4.12 0.75 0.56
profitability
Our bank is keen in eliminating most of
106 1 5 4.10 0.79 0.62
the losses associated with traditional accounting
Our bank uses kanban to manage the
106 1 5 0.81 0.66
queueing systems 4.05
Our bank uses a single-minute exchange of
106 1 5 0.83 0.69
die as a strategy of wastage reduction 4.02
Our bank clearly identifies the financial
106 1 5 3.86 0.87 0.76
impact of Lean improvements
Grand Mean = 4.068

The findings in Table 4.6 indicates that the respondents agreed (Mean = 4.18; Std Dev =
0.68) with the statement that the bank has adequately adopted the five S model to
improve productivity. Respondents also agreed (Mean = 4.15; Std Dev = 0.71) that their

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bank creates value for the customer by drawing value flows to meet Customer needs. The
findings of this study further indicate with (Mean = 4.12; Std Dev = 0.75) that the banks
organize costs by value stream mapping to make decisions to improve revenue and
profitability. The study also showed that with (Mean = 4.10; Std Dev = 0.79), bank is keen
in eliminating most of the losses associated with traditional accounting as a strategy of
wastage reduction. In addition, respondents also concurred with (Mean = 4.05; Std Dev =
0.81) that their banks use kanban to manage the queueing systems. The study further
indicates that the respondents agreed (Mean = 4.02; Std Dev = 0.83) that their banks use a
single-minute exchange of die as a strategy of wastage reduction. Respondents also
agreed (Mean = 3.86; Std Dev = 0.87) that their banks clearly identify the financial impacts
of lean improvements.
These findings are corroborated by other literature findings that showed that the
concept of Lean Accounting can make the banking industry more efficient and effective,
(Visser, 2016). The findings are also supported by other literature works showing that
confirming that Lean Accounting is not easily separated from the concept of a balance
scorecard, (Chiarini 2012). The findings also concur with Okpala, (2013) that Lean
Accounting is regarded as the best continuous improvement program, which is now
known in the business.

5.1 Lean Accounting and Financial Performance

The correlation analysis results of the relationship between lean accounting and financial
performance of the commercial banks in Eldoret town, Kenya was presented in Table 4.7.

Table 4.7: Lean Accounting

Financial Performance
Lean Accounting Pearson Correlation .792**
Sig. (2-tailed) .002
**. Correlation is significant at the 0.05 level (2-tailed).

These study findings in Table 4.7, indicated that the relationship between Lean
Accounting and financial performance was positive and statistically significant (r = .792;
p> 0.05). This implies that Lean Accounting positively and significantly influences the
financial performance of commercial banks in Eldoret town, Kenya. These findings can
be corroborated by those done by Wahdia, (2016) who stated that the concept of Lean
Accounting can make the banking industry more efficient and effective. This study
showed that the concept of Lean Accounting can make the banking industry more
efficient and effective.

5.2 Multiple Regression Analysis

The study established the combined effect of Lean Accounting; activity-based costing,
and resource consumption on financial performance. The results of the multiple
regression analysis are shown in Table 4.8.

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Table 4.8: Multiple Regression Model Summary

R R Square Adjusted R Square Std Error of the Estimate
.898 a .806 .779 .337
a. Predictors: (Constant), Lean accounting, activity-based costing, resource consumption
b. Dependent Variable: Financial performance

From Table 4.8, R-Squared is used to evaluate the goodness of fit of a model. In
regression, the R square coefficient of determination is a statistical measure of how well
the regression line approximates the real data. It measures the proportion of the variation
in dependent variable explained by independent variables. From the results on model
summary R = 0.898, R- square = 0.806, adjusted R- square = 0.779, and the SE = 0.337. The
coefficient of determination also called the R square is 0.806. This implies that the effect
of the predictor variables, Lean Accounting, explains 80.6% of the variations in the
financial performance of commercial banks in Eldoret town. This implies that a change
in Lean Accounting has a strong and positive effect on the financial performance of
commercial banks. This study thus assumes that the difference of 19.4% of the variations
is as a result of other factors.

5.3 Assessing Fit of the Multiple Regression Model

Multiple regression analysis was conducted to test the influence of predictor variables on
the financial performance of commercial banks. All three null hypotheses were tested
using F statics. The test results are shown in Table 4.9.

Table 4.9: Overall Results of ANOVA

Model Sum of Squares df Mean Square F Sig.
1 Regression 7.292 1 2.012 21,119 .001a
Residual 14.765 104 .129
Total 22.057 105
a. Dependent Variable: Financial performance
b. Predictors: (Constant), Lean Accounting,

The findings of the study in Table 4.9 showed that there was a statistically significant
relationship between the independent variables and the dependent variable (F= 21,119;
p=0.01). This therefore indicates that the multiple regression model was a good fit for the
data. It also indicates that value-based management factors i.e., Lean Accounting,
activity-based costing and resource consumption all influence the financial performance
of commercial banks.

5.4 T-test of Individual Regression Coefficients

The t-test was conducted to determine whether the individual regression coefficients
were statistically significant. These results were presented in Table 4.10.

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Table 4.10: Individual Regression Coefficients

Unstandardized Standardized
Model Coefficients Coefficients t Sig.
β Std. Error βeta
1 (Constant) .841 .359 2.830 .013
Lean accounting .209 .093 .223 3.250 .002
a. Dependent Variable: Financial performance

From the study, the Hypotheses stated that:

H01: There is no significant relationship between Lean Accounting and the
financial performance of commercial banks in Eldoret town in Kenya.
The results showed that Lean Accounting was positive and significant predictor
of financial performance with (t = 3.250; ρ < 0.05). The null hypothesis was therefore
rejected. The study hence concluded that there was a significant relationship between
Lean Accounting and the financial performance of commercial banks in Eldoret town in
Kenya.

6. Conclusion

The objective of the study sought to establish whether Lean Accounting determines the
financial performance of commercial banks in Eldoret town in Kenya. The study
indicated that Lean Accounting was positively and significantly related to financial
performance. This implied that Lean Accounting is a critical factor for the financial
performance of commercial banks. These findings meant that the null hypothesis that
there is no significant relationship between Lean Accounting and the financial
performance of commercial banks in Eldoret town was rejected.
Thus, Lean Accounting was a predictor of financial performance. The study also
concluded that organizing costs by value stream, adopting the Five’s model, using a
single-minute exchange of die, and eliminating most of the losses promote the
commercial banking sector’ financial performance. The study concluded therefore that
incorporating Lean Accounting as an accounting strategy in the banks is of great
importance as it will lead to cost-cutting and hence widen the profitability percentages
of the banking sector. Lean Accounting also enables the operations managers of the banks
to clearly set their goals pertaining to how much to use and when to use the available
ever limited financial resources.

Conflict of Interest Statement

This is a declaration by all the above authors that;
1) This paper has not been published by any other journal anywhere else;
2) That there are no financial, commercial, legal or professional obligations against
this paper by any person(s) or organizations nor with colleagues that could
influence or affect the publishing of this paper.

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 K’Odongo K. Kaire, Elson K. Kirui, George M. Nduruchi
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About the Authors

K’odongo Kaire, an Academic Renaissance Man. K'Odongo has pursued relevant
academic and professional accounting and finance courses in combination with short
courses to establish a good understanding in the field. With PhD in accounting, MSc in
Accounting and Finance, Bachelors of Commerce with a bias in Accounting and CPA (K).
K'Odongo is a business administration polymath (with Advanced Diploma in Business
Administration) to strengthen the values around which accounting is practiced in the
business environment. Plus, a proper foundation of Diploma in accountancy, it carries all
it can in this field not only to claim on the vast experience but also academic expertise.
All these can be combined with short courses in anti-money laundering, project
development and appraisal, change management and proficiency in both organizations
tailored and over the shelf accounting packages. Currently, K'Odongo is a lecturer at
Jomo Kenyatta University of Agriculture and Technology, Kenya. With like-minded
professionals, K'Odongo is into serious consultancy works in matters accounting and
finance and has attained the heights of international recognition. Other links,
https://www.researchgate.net/profile/Kodongo-Kaire-3; Google Scholar verified at
[email protected].
Elson K. Kirui is a professional Public Accountant. Mainly practicing Accounting and
Finance concepts in road construction industry both in private and public sector. In
addition, Elson is an achiever in academic field having been a CPA(K) and currently in
advanced stages of CS. Elson has done senior management courses like Strategic
Management Course at Kenya School of Government and currently pursuing Strategic
Leadership Development Programme in the same school. With a number of colleagues,
he has published a number of Finance/Accounting papers, three being the main author.
George M. Nduruchi, holder of MBA (finance) from Jomo Kenyatta University of
Agriculture and Technology and currently pursuing PhD (Accounting) in the same
university. Others include Bachelors of Commerce (Accounting) from the Catholic
University of Eastern Africa, Certified Public Accountant of Kenya and Certified
Secretary of Kenya from KASNEB. A registered Certified Public Accountant of Kenya
currently working with the Government of Kenya as an Assistant Director of Audit. A
publisher of a book on Internal controls and in referred journals on a wide range of topics.
He has a strong facilitating, teaching and public speaking skills for a diverse population,
having presented various papers in various conferences. For more mailto:
[email protected]

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Appendix: Accessible Population

Bank Name Branch manager Operations managers Accountants Total

ABC Bank 1 1 2 4
Bank of Africa 1 1 2 4
Bank of Baroda 1 1 2 4
Bank of India 1 1 1 3
Barclays Bank 1 1 3 5
Chase Bank 1 1 2 4
Commercial Bank of Africa 1 1 2 4
Consolidated Bank of Kenya 1 1 2 4
Co-operative Bank 2 2 5 9
Diamond Trust Bank 1 1 1 3
Eco Bank 1 1 2 4
Equity Bank Market Branch 2 2 3 7
Family Bank 1 1 2 4
Guardian Bank 1 1 2 4
Housing Finance Co. Ltd 1 1 2 4
I & M Bank 1 1 2 4
Kenya Commercial Bank 4 4 8 16
Middle East Bank 1 1 2 4
National Bank of Kenya 1 1 4 6
NIC Bank 1 1 2 4
Oriental Commercial Bank 1 1 2 4
Post Bank Limited 1 1 2 4
Prime Bank Limited 1 1 1 3
Sidian Bank 1 1 2 4
Spire Bank 1 1 2 4
Standard Chartered Bank 1 1 3 5
Trans-National Bank Ltd 1 1 2 4
Total 32 32 66 130
Source: Researcher, 2023.

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