EFFECT OF FINANCIAL STRUCTURE ON THE FINANCIAL PERFORMANCE OF DEPOSIT TAKING SAVINGS AND CREDIT COOPERATIVES IN KENYA
Abstract
Financial structure is an important factor of consideration when it comes to financial performance. Several studies show that highly leveraged organizations usually do well in terms of financial growth by increasing the value of a firm, contrary to the MM theorem that argues capital structure is irrelevant factor to consider since it does not affect the value of an organization. This study sought to examine the effect of financial structure on the financial performance of DT-SACCOs in Kenya. It was necessitated due to the inconsistencies and contradictions in findings of the previous studies that were sampled. The financial performance was measured by return on equity (ROE). The study adopted a descriptive research design and involved a sample size of 18 DT-SACCOs in Kenya ranked top in both asset base and deposit size in the financial year ended 31st December 2016. Secondary data obtained from the annual reports and financial statements of the 18 sampled DT-SACCOs was used for analysis. The annual reports and financial statements were sourced from the official website of SASRA and the respective official websites of the DT-SACCOs. The period of study stretched from year 2012 to year 2016. The collected data was converted into panels and fed into Stata version 12. The data was analyzed and hypotheses tested by use of descriptive, correlation and regression analysis models. The findings of the study showed that a positive and significant relationship existed between equity financing, long term debt financing, short term debt financing, member deposits and financial performance of DT-SACCOs in Kenya. There is need for DT-SACCOs to adopt alternative financial approaches in order to improve their financial performance. Some of the challenges encountered during the study included missing of financial statements for some years in the official websites of both SASRA and some DT SACCOs. This challenge was overcome by visiting the head offices of those DT SACCOs and requesting for soft copy of the missing financial statements. However, this delayed the study as it was not completed within the project expected completion period.
Key Words: equity, Long Debt, Short Term, Deposits, Financial Performance
Full Text:
PDFReferences
Abdul, G. K. (2012). The relationship of capital structure decisions with firm performance: A study of the engineering sector of Pakistan. International Journal of Accounting and Financial Reporting, 2(3), 2162-3082.
Ahmad, M. (2015). The Effect of Capital Structure on the Financial Performance of Listed Companies in Bahrain Bourse. Journal of Finance and Accounting, 3(4), 50-60.
Arulvel, & Ajanthan. (2013). Capital Structure and Financila Performance: A study of listed trading companies in Sri Lanka. Academicia: An international Multidisciplinary Research Journal, 3(6), 2249-7137.
Baker, M., & Wurglar, J. (2002). Market Timing and Capital structure. Journal of Finance, 3(4),12-26.
Chowdhury, A. (2010). Impact of capital structure on firm's value: Evidence from Bangladesh. Peer-reviewed and open access journal, 4(5), 111-122.
Ebaid, I. E.-s. (2009). The impact of capital structure choice on the firm performance: empirical evidence from Eqypt. The Journal of Risk Finance, 1526-5943.
Fabozzi, F. J., & Peterson, P. P. (2003). Financial Management and Analysis (2nd Edition ed.). New Jersey: John Wiley & Sons .
Fama, E. F., & French, K. R. (2002). Testing Trade-off and Pecking Order Predictions about Dividends and Debt. Review of Financial Studies, 15, 1-37.
Faraway, J. (2002). Practical Regression and Anova Using R. Retrieved from Research Project: http://www.r-project.org
Gay, L., Mills, G., & Airasian, P. (2009). Educational research: Competencies for analysis and applications (9th ed.). Upper Saddle River, New Jersey: Prentice Hall.
Ghana Co-operative Credit Unions Association. (2017). Retrieved from Ghana Co-operative Credit Unions Association: http://www.cuagh.com/cua/about-us/history/
Ghazouani, T. (2013). The Capital Structure through the Trade-Off Theory: Evidence from Tunisian Firm. International Journal of Economics and Financial Issues, 625-636.
Githire, C., & Muturi, W. (2015). Effects of Capital Structure on the financial performance of firms in Kenya: Evidence from firms listed at the Nairobi Securities Exchange. International Journal of Economics, Commerce and Management, III(4).
History and Organization of Cooperative Development and Marketing Sub Sector in Kenya . (2017). Retrieved from The Ministry of Industry, Trade and Cooperatives: http://www.industrialization.go.ke/index.php/downloads/123-history-and-organization-of-cooperative-development-and-marketing-sub-sector-in-kenya
Islam, M. A. (2014). An Analysis of the Financial Performance of National Bank Limited Using Financial Ratio. Journal of Behavioural Economics, Finance, Entrepreneurship, Accounting and Transport, 121-129.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure . Journal of Financial Economics, 305-360.
Keith, T. (2006). Multiple Regression and Beyond. Pearson Allyn & Bacon.
Kothari, C. (2004). Research Methodology: Methods and Techniques. New Delhi: New Age International Publishers.
Kumar, R. (2011). Research Methodology: A step-by-step for beginners. London: SAGE Publications Ltd.
Maina, L., & Kandongo, O. (2013). Capital Structure and Financial Performance in Kenya Evidence from Firms Listed at the Nairobi Securities Exchange. Journal of Finance and Accounting.
Mauwa, J., Namusonge, P. G., & Onyango, P. S. (2016). Effect of capital structure on financial performance of firms listed on the Rwandan stock exchange. European Journal of Business, Economics and Accountancy, 4(4), 2056-6018.
Mclaney, E. (2009). Business Finance Theory and Practice (8th ed.). London: Pearson Education Ltd.
Miller, & Merton, H. (1995). Do the M&M Propositions Apply to Banks? Journal of Banking and Finance, 483-489.
Milos, R. L., & Milos, C. M. (2015). Does Short Term Debt affect Profitability? Evidence from the Romanian Listed Companies. Performance, Competitiveness and Creativity, 1844-7007.
Moyer, R., McGiugan, J., & Kretlow, W. (1999). Contemporary Financial Mnagement (5th ed.). New York: West Publishers.
Mugenda, O. M. (2003). Research Methods: Quantitative and Qualitative Approaches. Nairobi: Acts Press.
Mwangi, I. W., & Wanjau, K. L. (2012). The Role of SACCO in Growth of Youth Entrepreneurship in Kenya: A case of Nairobi County. Grener Journal of Business and Management Studies.
Myers, S. C. (2001). Capital Structure. The Journal of Economic Perspectives , 81-102.
Myers, S. C., & Majluf, N. S. (1984). Corporate Financing & Investment Decisions when Firms have Information that Investors do not have. Journal of Financial Economics, 187-221.
Ogebe, J. O. (2013, March 27). The Impact of Capital Structure on. Lagos, Nigeria.
Orodha, A. (2003). Essentials of Educational and Social Science Research . Nairobi: Masola Publishers.
Otieno, A. K. (2013). Capital structure of listed firms in Kenya: the case of non financial firms. Nairobi.
Pandey. (2015). Financial Management. New Delhi, India: Vikas Publishing House PVT ltd.
Pandey, I. (2011). Financial Management. New Delhi: Vikas.
Pandey, I. M. (2015). Financial Management. New Delhi, India: Vikas Publishing House PVT ltd.
Petersen, L. W. (2017). Introduction to Investment and Finance (1st Edition ed.). Denmark: bookboon.com.
Pratheepkanth, & Puwanenthiren. (2011). Capital structure and financial performance: Evidence from selected business companies in Colombo stock exchange Sri Lanka. Journal of Arts, Science & Commerce, II(2), 2231-4172.
Sacco Societies Regulatory Authority. (2017). Licensed Saccos. Retrieved from Sacco Regulatory Authority: https://www.sasra.go.ke
Sekaran, U., & Bougie, R. (2011). Research Methods for Business: A Skill Building Approach (5th ed.). Delhi: Aggarwal printing press.
Velnampy, T., & Vickneswaran, A. (2014). Capital Structure, Liquidity Position and Their Impact on Profitability: A study of Listed Telecommunication Firms in Colombo Stock Exchange (CSE), Sri Lanka. Research Journal of Finance and Accounting, 2222-2847.
Wanjiru, A. N., & Muturi, W. (2016). Factors Affecting Financial Performance of Savings and Credit Co-Operative Societies: Case Study Kiambu County. International Journal of Management and Commerce Innovations, 196-207.
DOI: http://dx.doi.org/10.61426/sjbcm.v5i2.706
Refbacks
- There are currently no refbacks.
This work is licensed under a Creative Commons Attribution 3.0 License.
PAST ISSUES:
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.