EFFECT OF FIRM CHARACTERISTICS ON FINANCIAL PERFORMANCE OF DEPOSIT TAKING SACCOS LICENSED BY SASRA IN NAIROBI,KENYA
Keywords:
firm size, leverage, growth, liquidity, financial performance, deposit taking SACCOs
Abstract
Purpose of the study: Savings and credit cooperatives societies (SACCOs) in Kenya are set up to mobilize members’ funds and grant credit for the members’ development. Therefore, in spite of the importance of this sector, these firms are faced with a problem of variability in financial performance which has made it difficult for them to grow their wealth and contribute significantly to National Domestic Savings. Literature suggests that firm characteristics determine performance of deposit taking SACCOs, but it is not clear to what extent. The objective of this study is to examine the effect of firm characteristics on the financial performance of Deposit taking saving and credit cooperatives societies licensed by SASRA in Nairobi County extended from the period 2012 to 2015. The specific objectives were; to evaluate the effect of firm size on financial performance of deposit taking SACCOs, to assess the effect of level of leverage on financial performance of deposit taking SACCOs, to determine the effect of growth on financial performance of deposit taking SACCOs and to establish the effect of liquidity on financial performance of deposit taking. The theories of trade off, agency cost, pecking order and growth of the firm will be reviewed to point out the knowledge that already exists and known about the effect of firm characteristics on financial performance.
Methodology: The research adopted causal design.
Results of the study: Model summary results revealed that firm size, leverage, growth and liquidity explain 42.3% of financial performance of deposit taking SACCOs. Regression of coefficients results showed that firm size and financial performance of deposit taking SACCOs in Kenya are positively and significantly related. The results also revealed that leverage and financial performance of deposit taking SACCOs in Kenya positively and significantly related. The results also revealed that firm growth and financial performance of deposit taking SACCOs in Kenya are positively and significantly related. It was also established that firm liquidity and financial performance of deposit taking SACCOs in Kenya are positively and significantly related.
Conclusion and policy recommendation: Based on the findings above, the study concluded that firm size and leverage have a significant effect on financial performance of deposit taking SACCOs in Kenya. The study recommends that in order for deposit taking SACCOs to increase their performance (profitability) there is need for deposit taking SACCOs to increase size by expanding their customer base, net assets, deposit liabilities and market share. The study also recommends that firms should negotiate for better and longer credit terms in relation to repayment terms and interest rates. A Sacco should keep in balance the financing of the firm by debt to ensure that it does not rely much on debt. The study recommends vertical growth of a firm by investing in diversified portfolio.
Keywords: firm size, leverage, growth, liquidity, financial performance, deposit taking SACCOs
References
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FSD (2013). Financial Sector Deepening Report (2013)
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Gu, Z., Lee, C.W. J., & Rosett, J. G. (2005). What determines the variability of accounting accruals? Review of Quantitative Finance and Accounting, 24(3), 313-334.
Hannah, K., Gekara, M., & Joseph. (2013). Effect of operating costs on the financial performance of SACCOS in the Banking sector in Kenya. Prime Journal of Business Administration and Management (BAM) ISSN: 2251-1261.vol.4 (2), pp.1359-1363
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Janthorn, S., & Navee, C. (2015). Investigation of Thai Manufacturing Public Firms' Characteristics and Financial Strategies towards Financial Performance's Improvement. Journal of Economics, Business and Management, Vol. 3, No. 3.
Jensen, M.C, & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Capital Structure. Journal of Financial Economics, 3, 305-360.
John, R. &Fred, R. (2010). Employees, Firm size and Profitability in U.S. Manufacturing Industries. Investment Management and Financial Innovations, Volume 7, Issue 2.
Jonsson, B. (2007). Does the size matter? The relationship between size and profitability of Icelandic firms. Bifrost Journal of Social Science, 1, 43–55.
J. Ooi. (1999).The determinant of capital structure: Evidence on UK property companies. Journal of property investment and finance, 17(5): 464-480.
Kaguri, A (2012). Relationship between Firm Characteristics and Financial performance of Life insurance companies in Kenya (Master’s thesis). University of Nairobi.
Karani, R.M. (2014). The Effect of Liquidity Management on Profitability of Commercial Banks in Kenya. Unpublished MBA Project, University of Nairobi.
Kembo M. Bwana. & Joshua Mwakujonga. (2013). Issues in SACCOS Development in Kenya and Tanzania: The Historical and Development Perspectives, 5, vol 3
Kioko, P.(2010). The relationship between Firm size and Financial Performance of Commercial banks in Kenya (Masters Research Project school of Business). University of Nairobi.
Kothari, C. R. (2004). Research methodology: Methods and techniques (2nd ed.). New Delhi: New Age International.
Kenya Union of Savings and Credit Cooperatives. (2009). Challenges Facing SACCOS in Nairobi.
Kraus, A.; Litzenberger, R.H. (1973). A State Preference Model of Optimal Financial Leverage. Journal of Finance. 28: 911–922
Kzistami, Magof (2011). Does leverage have a strong impact on profitability? International Journal of Governance, Volume 1, Issue 3.
Lafourcade, A., et al. (2005). Overview of the Outreach and Financial performance of microfinance institutions in Africa. MIX, Washington.
Ledgerwood, J., et al. (1999). The microfinance Handbook-an institutional and financial perspective, Sustainable banking with the Poor: World Bank
Lukorito, S., Muturi, W., Muturi W., Nyang’au, A., Nyamasege, D. (2014). Assessing the effect of liquidity on profitability of commercial banks in Kenya. Research Journal of Finance and Accounting, vol.5, 19, 2014.
Mahfoudh, O (2012). Effect of Selected Firm Characteristics on Financial Performance of firms listed in the Agricultural sector at the Nairobi Securities Exchange (Master’s Thesis). University of Nairobi
Mahfoudh, O (2012). Effect of Selected Firm Characteristics on Financial Performance of firms listed in the Agricultural sector at the Nairobi Securities Exchange (Master’s Thesis). University of Nairobi
Maja, P., and Josipa V. (2012). Influence of Firm Size on its Business Success. Croatian Operational Research Review (CRORR), Vol. 3
Majumdar, S.K. (1997). The Impact of Size and Age on Firm-Level Performance: Some Evidence from India. Review of Industrial Organization, 12 (2), 231-241
Makori C.M., Munene, C., & Muturi, W. (2013). The challenges facing deposit taking Savings ND Credit Cooperatives Societies’ regulatory compliance in Kenya. A case study of Gusii region, Interdisciplinary Journal of Contemporary Research Business, 4(12)
McKillop, D.G., & Wilson, J.O.S. (2014). Recent Developments in the Credit Union Movement, Working paper responsible in Banking &Finance.
Malik, J. (2011).Determinants of Insurance Companies Profitability: An Analysis of Insurance Sector of Pakistan. Journal of Monetary Economics, Volume 1, Issue 3
Modigliani, F., &Miller M. (1963). Corporate income taxes and the cost of capital: A correction. American Economic Review,48, pp.261-297
Ministry of Cooperatives Development and Marketing (MOCDM) (2008). Report on SACCO Sector Development, 2008.
Mbewa,MO & Jagongo, A. (2012).Financial Practice as a Determinant of Growth of Savings and Credit Co-Operative Societies’ Wealth.
Mugenda, M & Mugenda, A. (2003). Research methods, quantitative and qualitative Approaches. Nairobi: Acts Press.
Mustaruddin, S., Norhayah, Z., &Rusnah, M. An Empirical Examination of the Relationship between Corporate Social Responsibility Disclosure and Financial Performance in an Emerging Market (PhD Thesis). University of Malaysia.
Frank, M. Z., & Vidhan K. Goyal, 2003, Testing the pecking order theory of capital structure, Journal of Financial Economics67(2), 217-248
Mitnick, B.M. (2006). Origin of the theory of Agency; an account by one of the originators, Social Sciences Research Network; Working Paper Series, University of Pittsburg: http://www:ssrn.com/abstract.
Ndung'u, C. W. (2003). Determinants of commercial banks profitability in Kenya: the case of Kenyan quoted banks. An unpublished MBA project, University of Nairobi.
Odhiambo, J., (2013). The relationship between working capital management and financial performance of deposit taking Savings and Credit Cooperative Societies licensed by SACCO regulatory authority in Nairobi County (Published Master’s Thesis) University of Nairobi.
Olando, C.O., Jagongo, A. O., & Mbewa, M.O. (2013). The Contribution of Sacco Financial Stewardship to Growth of Saco in Kenya.
Ochieng Gweyi, M., Musyoki Minoo, E., & Chanzu Luyali, N. (2013). Determinants of Leverage of Savings and Credit Co-Operatives in Kenya: An Empirical Approach. International Journal of Business & Commerce, 2(10).
Oloo, O. (2011). Banking Survey Report The best banks this decade 2001-2010, think Business limited Kenya. Retrieved from www.bankingsurvey.co.ke.
Omino, G. (2005). Regulation and Supervision of Microfinance Institutions in Kenya. Central Bank of Kenya. Essay on Regulation Supervision Series.
Öner Kaya, E.(2013). Capital Adequacy in the Insurance Business and Assessment of Turkish Insurance Sector within the Scope of Solvency II.Ph.D. Thesis,Gazi University: Ankara, Turkey.
Öner Kaya, E.(2015). The Effects of Firm-Specific Factors on the Profitability of Non-Life Insurance Companies in Turkey. International Journal of Financial Studies,3, 510-529
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Published
2019-04-09
How to Cite
Masika, D., & Simiyu, E. (2019). EFFECT OF FIRM CHARACTERISTICS ON FINANCIAL PERFORMANCE OF DEPOSIT TAKING SACCOS LICENSED BY SASRA IN NAIROBI,KENYA. African Journal of Emerging Issues, 1(4), 48 - 73. Retrieved from https://ajoeijournals.org/sys/index.php/ajoei/article/view/26
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