ABSTRACT : Parastatals have embraced participatory budgeting to ensure proper utilization of available resources.Despite the approach, parastatals still experience challenges, which lead to poor financial performance.The main objective of this study was to evaluate the effect of stakeholders’ involvement in monitoring and evaluation on financial performance of parastatals with liquidity gaps in Kenya. Theories that guided were; budget theory, resource dependence theory and agency theory. Pragmatism philosophy was adopted. Correlational research design was used on a population of 424 officers. A purposive sampling technique was used to obtain the sample size. Primary data was collected by use of questionnaires while secondary data was collected through analysis of audited financial statements. Data were analyzed using Statistical Package for Social Sciences (SPSS). Reliability of research instruments was tested through Cronbach’s Alpha and construct validity was assessed through factor analysis. Stakeholders’ involvement in monitoring and evaluation had a significant relationship with financial performance. The study provides information to the government and policymakers especially the executives by assisting them in analyzing and utilizing the benefits that come with involving stakeholders’ in monitoring and evaluation. It also recommends that parastatals should ensure the priority of stakeholders is taken into consideration during the budgeting process.

KEYWORDS –Evaluation,Financial Performance, Liquidity Gaps, Monitoring, Parastatals