Effect Of Firm Characteristics On Financial Performance Of Deposit Taking Saccos Licensed By Sasra In Nairobi County,Kenya.

ABSTRACT

Savings and credit cooperatives societies in Kenya are set up to pool finances of members and support them with credit for their development. Even though they play a significant role in cooperative sector, they are faced with a problem of variability in financial performance which has made it challenging for them to expand their wealth and make significant contribution to National Domestic Savings. Literature suggests that firm characteristics determine their performance, but it is not clear to what extent. The study mainly examines the effect of deposit taking SACCOs‟ characteristics on financial performance. The specific objectives of the study are to determine the effect of firm size, leverage, growth and liquidity on financial performance. Trade-off, agency cost, pecking order, growth of the firm and stakeholder‟s theories were reviewed to point out the knowledge that already exists and known about firm characteristics and their effect on financial performance. The research adopted causal research design. The research targeted 34 deposit taking SACCOs licensed by SASRA in Nairobi County and a census of the population for a period of 4 years ranging from 2012 to 2015 was carried out. The secondary data was collected through a data collection sheet and analyzed using Panel data regression. The analyzed data was presented in figures, tables, and detailed discussions made. The Model summary results revealed that firm size, leverage, growth and liquidity explain 42.3% of financial performance of deposit taking SACCOs. Regression of coefficients results showed that firm size and financial performance of deposit taking SACCOs in Kenya are positively and significantly related. The results indicated that leverage and financial performance of deposit taking SACCOs in Kenya are positively and significantly related. The study found that firm growth and financial performance of deposit taking SACCOs in Kenya are positively and significantly related. It was also established that firm liquidity and financial performance of deposit taking SACCOs in Kenya are positively and significantly related. Based on the findings above, the study concluded that firm size, leverage, growth and liquidity have a significant effect on financial performance of deposit taking SACCOs in Kenya. The study recommends that in order for deposit taking SACCOs to increase their performance (profitability) there is need for them to increase size by expanding their customer base, net assets, deposit liabilities and market share. The study also recommends that firms should negotiate for better and longer credit terms in relation to repayment terms and interest rates. A SACCO should keep in balance the financing of the firm by debt and equity to ensure that it does not rely much on debt. The study recommends vertical growth of a firm by investing in diversified portfolio. Growth of SACCOs is not for the sake of growth, but sometimes inherent to their existence. It is quite critical aspect of the organization lifecycle. They must continuously grow to sustain optimal profitability. Finally, the study recommends that deposit taking SACCOs should increase their current assets so as to increase their liquidity as it was found that an increase in liquidity ratio positively affect the financial performance. Lastly, there is need for deposit taking SACCOs to increase their operating cash flow, through reduction of their credit repayment period in order to positively influence their financial performance.