Corporate Governance and Financial Performance of Deposit Taking Sacco's in Kenya

Abstract

The purpose of this study was to empirically explore the relationship between corporate governance (CG) and financial performance (FP) within deposit-taking SACCOs in Kenya. A panel dataset comprising data collected from 163 SACCOs was utilized to test this relationship. CG was assessed using metrics such as board size, board independence, board financial expertise, board diversity, and board activity, while FP was measured through return on assets (ROA). The panel regression model was selected as the estimation technique after conducting the Hausman specification test. The empirical results revealed a robust and statistically significant positive relationship between CG practices and FP outcomes among the SACCOs studied, underscoring the importance of effective governance structures in enhancing financial performance. These findings have practical implications for policy development aimed at strengthening governance frameworks within SACCOs, potentially improving their operational efficiency and sustainability. They also contribute to management practices by highlighting the strategic importance of board composition and activities in driving financial outcomes. For future research, exploring additional dimensions of CG, such as executive compensation or risk management practices could provide deeper insights. Comparative studies across different types of financial cooperatives or longitudinal analyses to capture temporal dynamics could further enrich our understanding of how governance influences financial performance in diverse institutional contexts. Additionally, qualitative research approaches could complement quantitative findings by exploring stakeholder perspectives and organizational behaviors related to governance practices, offering a more comprehensive view of governance's impact on SACCO performance.

Keywords: corporate governance, financial performance, deposit taking Sacco’s