Effects of corporate governance on financial performance of savings and credit cooperative societies in Machakos and Athi-river sub-counties

Abstract

Corporate governance is a concept that involves practices that entail the organization, management and control of companies. It reflects the interaction among those persons and groups, which provide resources to the company and contribute to its performance such as shareholders, employees, creditors, long - term suppliers and subcontractors. Corporate governance has received much attention in accounting literature, with studies focusing on the impact of corporate governance and the financial performance of the firms . None of these studies have focused on the effect of corporate governance and financial performance of the Savings and Credit Cooperative Societies in Machakos and Athi- river sub-counties. This study aimed to establish the effects of corporate governance on financial performance of the SACCOs in the sub - counties. The research problem was studied through the use of a descriptive research design. The population of interest in this study was the savings and credit cooperative societies in Machakos and Athi - river sub - counties. Data collection involved self - administered questionnaires. The researcher dropped the questionnaires physically at the respondents’ place of work. Data collected was both qualitative and quantitative and it was analyzed by descriptive analysis techniques. The findings were presented using tables, charts, percentages, tabulations, means and other measures of central tendency. Tables were used to summarize responses for further analysis and facilitate comparison. This generated quantitative reports through tabulations, percentages, and measures of central tendency. The findings of this study established a strong positive correlation between board composition and financial performance of SACCOs. Academic qualification and occupation had the highest influence on SACCO’s financial performance with r(33) = 0.851, p < 0.05 and r(33)=0.845, p< 0.005 respectively. It was however noted that there was a weak positive correlation between gender and SACCO’s financial performance, r(33) = 0.432, p < 0.05. It was also established that t here is a strong negative correlation between size of board and SACCO ’ s financial performance, r(33) = - 0.784 , p < 0.05. This means that the fewer the board members the better the financial performance of SACCOs. Besides, a strong positive correlation between board leadership and SACCO’s financial performance was determined , r(33) = 0.812, p < 0.05 . A strong positive correlation between transparency/disclosure and SACCO’s financial performance, r(33) = 0.884, p < 0.05 existed . The coefficient of determination R square was 0.542 which implied that 54.2% of variation in the dependent variable is determined by the independent variables (predictors). It also means the goodness of fit test is fulfilled. This also means that all the factors ( board composition, board size, leadership, transparency and disclosure ) significantly predict financial performance of SACCOs, with transparency and disclosure having the highest prediction ( ß = 2.208).