Effect of corporate governance on financial performance of deposit taking SACCOs in eastern region of Kenya

Abstract

Savings and Credit Co-Operatives have provided essential financial services to a significant portion of the Kenyan population who were previously unable to obtain such services at commercial banks. Deposit-taking Savings and Credit Cooperative Societies (SACCOs) in the Eastern area of Kenya have experienced a decrease in their financial performance. The study aimed to determine the effect of corporate governance on the financial performance of deposit taking SACCOs in the Eastern Region of Kenya. The study aimed to determine the effect of risk management, board qualification, meeting frequency, and institutional ownership on the performance of deposit taking SACCOS in the eastern area of Kenya. The study was based on the Agency Theory, the Stakeholder Theory, and the Human Capital Theory. The research investigated several independent variables: risk management, board credentials, meeting frequency, and institutional ownership, with the dependent variable being SACCO financial performance. A thorough review of existing literature on corporate governance's effect on SACCO financial performance was conducted. The study focused on 25 Savings and Credit Cooperative Organisations in Kenya's Eastern Region, selected through census sampling. Board members and department heads from these SACCOs were chosen for analysis. Employing a descriptive research design, the study collected both primary and secondary data. Primary data was gathered via questionnaires, while secondary data came from the SACCOs' financial records. SPSS software was used for data analysis, generating both descriptive and inferential statistics. Findings revealed an R squared value of 0.536 and an adjusted R squared value of 0.522 at a 95% significance level. This suggests that the examined corporate governance factors collectively explain 53.6% of the variance in financial performance among deposit-taking SACCOs in Kenya's Eastern Region. The study found out that risk management significantly and positively influenced the financial performance of these SACCOs (β =.336, p=.000<.05). Similarly, board qualifications showed a significant positive effect (β =.358, p=.000<.05). Meeting frequency also demonstrated a significant positive effect (β =.399, p=.000>.05). Lastly, institutional ownership exhibited a significant positive influence (β =.231, p=.000<.05). In conclusion, the research determined that corporate governance had a significant and positive effect on the financial performance of deposit-taking SACCOs in Kenya's Eastern Region. Consequently, the study recommended that these SACCOs should implement and enhance their corporate governance practices to boost financial performance.