Effect Of Corporate Governance Dimensions On Financial Performance Of Savings And Credit Cooperative Societies In Nairobi County, Kenya

Abstract

Cooperatives play significant role in national economy and socio-economic development in Kenya. Savings and Credit Cooperative Societies (SACCOs) in Kenya not only provide loans to their members, but they also offer investment opportunities, agricultural facilities for farmers, create employment, housing solutions, and much more. In the recent one decade, SACCOs in Kenya have been experiencing challenges in financial performance. The return on assets among SACCOs in Nairobi County in the year 2018 was 14.53%, which decreased to 14.13% in the year 2019, 13.82% in 2020 and 13.75% in 2021. The main objective of the study was to examine the influence of corporate governance dimensions on SACCOs’ financial performance in Nairobi County. Specifically, the study sought to determine the effect of board independence, board accountability, audit committee and financial disclosure on financial performance of SACCOS in Nairobi County. The study was anchored on agency, stewardship, and stakeholder theories. This research used descriptive survey design. The target population was the heads of finance and administration in all the 43 SACCOs in Nairobi County. Pre-testing of research instruments was carried out among SACCOs in Kiambu County. The researcher used census methodology to collect data. Secondary data on return on assets, total deposits, total assets and non-performing loans was collected from the annual reports of the SACCOs. Primary data was collected using semi-structured questionnaires. Content analysis was used to analyze qualitative data and the results were presented in a narrative form. Quantitative data was then analyzed using inferential and descriptive statistics with the help of statistical software known as Statistical Package for Social Sciences version 22. Descriptive statistics comprised of mean, frequencies, standard deviation, and percentages. Regression and correlation analysis were examples of inferential statistics used. The study's findings were represented using both tables and figures. The study found that board independence has a positive and significant effect on the financial performance of SACCOs in Nairobi County. In addition, board accountability has a positive and significant effect on the financial performance of SACCOs in Nairobi County. The study also found that the audit committee has a positive and significant effect on the financial performance of SACCOs in Nairobi County. The study established that financial disclosure has a positive and insignificant effect on the financial performance of SACCOs in Nairobi County. The study recommends that SACCOs should select independent members of the boards to help the societies run honestly and efficiently since they are not under the influence of the management teams. In addition, SACCOs should make sure that the board of directors actively oversees and holds management accountable for financial decisions, risk management, and strategic planning. They should select the audit committee to monitor financial reporting, audit process, internal control system of the organization, and legal and regulatory conformity. They should also clearly define the roles and responsibilities of the audit committee in the SACCO's bylaws. Further, SACCOs should also establish a system for regular reporting to the board on financial performance, risk exposure, and compliance with financial policies and regulations.