ABSTRACT:- Financial distress describes any situation where an individual’s or an institution”s financial condition leaves them struggling to meet their obligations when they are due. A number of public Universities are struggling financially to meet their daily operations and they have also failed to meet their obligations to creditors. Many studies have been done with emphasis on the private enterprises and many other studies fail to link financial management practices and distress in public universities. The objectives of the study was to assess the effect of capital budgeting practices on financial distress in Kenyan public Universities. The study also sought to evaluate the moderating influence of internal governance practices on the effect of capital budgeting practices on financial distress of public Universities in Kenya. The study was anchored on the budgetary control theory. The pragmatism research philosophy guided the study. A mixed methods research methodology was used for the investigation. The study’s target demographic comprised internal auditors, finance officers, ICT officers, and deputy vice chancellors of finance and administration from Kenya’s 35 public universities. The researcher collected the data from the target demographic through a census. Primary data were gathered through questionnaires, and information on the dependent variable was gathered through secondary data. Cronbach’s Alpha was used to test for reliability. Factor analysis and experts were used to evaluate the validity of the instrument. The data was examined utilizing descriptive statistics, including means, standard deviations, and variances. Inferential statistics included correlation analysis and multiple regression analysis to determine the association between the chosen financial management techniques and financial distress. The study depicted that financial management practices explains 54.5% and 59.4% variation in financial distress without and with moderating effect of internal governance practices. Regression analysis indicated that capital budgeting practices had a significant effect on financial distress with a coefficient of -0.097 without moderating effect internal governance practices and -0.083, with moderating effect internal governance practices. The study concluded that capital budgeting practices had a negative and significant effect on financial distress. The study therefore recommended that universities should prioritize establishing good capital budgeting practices.

Keywords: Capital budgeting practices: Financial distress: Public Universities