MODERATING EFFECT OF SIZE ON THE RELATIONSHIP BETWEEN FUNDING SOURCES AND PERFORMANCE OF COMMERCIAL BANKS IN KENYA

Abstract

Firms not only compete for customers but also sources of funding, firms must come up with a better funding
mix that can enable them to execute their operational agenda to ensure better performance. In the banking
world deposit owed to banks, deposits owed to customers and equity capital are the major funding source.
To secure and operationalize these sources several factors must be considered and the need to evaluate the
short-term and long-term likely implications of incorporating them is paramount. For a better
understanding of some of the implications and how these blend into the banking sector. An evaluation of
how the size of various commercial banks operating in Kenya moderates a relationship between their
performance and the three funding sources was actualized through this study. From the literature that was
reviewed, the gaps were conceptualized, and the hypothesis frame. A descriptive research design was then
employed, and secondary panel data was obtained from 35 banks between the periods 2011 to 2021, it was
possible to come up with the various regression equations, which aided in explaining the nature of
association among the three sources of funding, size, and performance of the selected commercial banks.
Findings suggest that the bank’s size moderates the direct relationship between funding sources and
performance. In light of these developments, it is proposed that firms seeking to be financed from whatever
sources have to devise some ways that make them look attractive at least at face value for instance,
moreover, firm management should make an effort in paying keen attention to their firm size and should at
all time work on areas that promote the growth of the firm, for instance, they have placed an attractive rate
of return on funds obtained from shareholders, while others have diversified their businesses to make
themselves more attractive to potential investors, management reorganization with a view of attaining
optimum efficiency.
Key words: Funding sources, size, equity capital, deposits, and performance.