EFFECT OF ADOPTION OF CORPORATE GOVERNANCE PRACTICES ON FINANCIAL PERFORMANCE OF SAVINGS AND CREDIT CO-OPERATIVE SOCIETIES IN NYANDARUA COUNTY, KENYA

Abstract

The Corporate Governance Practices is a management tool that was introduced by Nairobi Securities Exchange (NSE) through the Capital Markets Authority (CMA) as statutory requirement for companies listed at NSE to improve their financial performance. Though Kenya has enforced Corporate Governance Practices, it has in equal measure experienced cases of mismanagement of SACCOs that have led to a number of them to collapse and some to experience liquidity challenges. A case in point was the mismanagement of the giant Harambee SACCO which put SACCOs on the spotlight. Despite several studies on Corporate Governance Practices, it is not clear how aspects of corporate governance; insider lending, submission of accounts to SASRA, disclosure requirements, and appointment of internal auditor have affected the financial performance of SACCOs. Moreover, studies done on different aspects of Corporate Governance have shown mixed outcomes. This study examined effect of adoption of corporate governance practices, aforementioned, on financial performance of SACCOs. The study narrowed down to three theories relevant to the study that have bearing aspects of Corporate Governance, namely; Agency, Stewardship and Stakeholder theories. The study adopted descriptive research design that involved set of methods and procedures that described intended variables and how they relate to each other. The target population was the 61 SACCOs registered with the County Co-operatives Officer in Nyandarua County. A two-stage sampling was used first obtain sample of 53 SACCOs. The study adopted Israel, (1992) formula to sample 53 from the population of 61 SACCOs, and thereafter, from the 53 sampled SACCOs, two top managers were sampled. This led to a sample of 106 respondents. Primary data was collected using a structured questionnaire whereas; secondary data was collected from financial statements, and another relevant document of the sampled SACCOs through documentary analysis. Data was analysed using descriptive and inferential statistics and results presented in form of tables and charts. Of the 106 distributed questionnaires, 100 were duly filled and returned and therefore the response rate was 94.3%. The calculated R value was 0.882. The R square was equal to 0.778 while the adjusted R square value was 0.770 which means that 77.0% of the corresponding variation in financial performance of the SACCOs can be explained by change in the independent variables. From the coefficients matrix table of the multiple regression, Insider lending has the greatest effect on financial performance of SACCOs with a coefficient of -0.391 followed by the appointment of internal auditor with a coefficient of 0.243, disclosure requirements with 0.176 and Submission of Accounts with 0.330. The variable on insider lending had a negative coefficient implying that a unit increase in insider lending led to a decrease in financial performance of the SACCOs by 0.391 units. The variables were all significant at p=0.000 and p=0.013 for the constant term. The study therefore fails to accept the null hypothesis that corporate governance practices have no significant effect on the financial performance of SACCOs in Nyandarua County and states that corporate governance practices, namely, insider lending, submission of accounts, disclosure requirements and appointment of internal auditor have significant effect on the financial performance of the SACCOs. This further implies a significant moderating effect of macroeconomic factors on the effect of corporate governance practices on financial performance.