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 there 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).