Effect Of Corporate Governance On Financial Performance Of Savings And Credit Cooperatives In Nairobi County

Abstract

An organization’s economic success does not only depend on quality management, innovation and efficiency, but also on the capacity of the organization to observe corporate governance principles. The purpose of this study was to establish the influence of corporate governance on financial performance of SACCOs in Nairobi County. The specific objectives were to establish the influence of board meetings attendance, board committees, board diversity and board size on financial performance of SACCOs in Nairobi County.This study is anchored on stewardship theory,resource dependence theory and agency theory.Descriptive research design was applied in the study and the target population was all the 41-deposit taking SACCOs in Nairobi County that were licensed by SASRA.The study utilized secondary data that was collected from the deposit taking SACCOs. Five years (2015 – 2019) data from the 41-deposit taking SACCOs was analysed using panel data regression analysis.Housman test was conducted to establish which among the panel regression models (random effects model and fixed effects model) was suitable for the data. Other diagnostic tests were conducted to test for multi-collinearity, heteroscedasticity, serial correlation and normality of residuals. The results of the model for the study was presented in tabular form. The study findings showed that board size and board committees had a significant positive effect on ROA. However, board gender diversity and board meeting attendance did not have a significant effect on ROA. Based on the study findings, the study makes the following recommendations. First, SACCOs with fewer board members should consider increasing the number of board members to be sufficient enough to provide the requisite oversight and governance of the SACCO. Besides, SACCO boards of directors should form several committees to oversee critical functional areas of the SACCOs.