Relationship between Corporate Governance and Financial Performance of Farmers’ Cooperative Societies in Kericho County, Kenya

Abstract

The farmers' cooperative societies have contributed significantly to the agricultural sector by providing information on farmers' production, granting farmers’ loans, advancing inputs necessary for farmers' production, bargaining on behalf of the farmers, and providing marketing and logistic services. However, despite the significant contribution of farmers' cooperative societies, they have yet to realize their full potential due to poor governance practices leading to poor financial performance in cooperative societies, raising severe concerns among stakeholders. Cooperatives ministry affirmed that, in Kericho County seven farmers’ cooperative societies were dissolved between 2015 and 2020 due to poor financial performance. On this basis, the research sought to assess the relationship between corporate governance and the financial performance of farmers' cooperative societies in Kericho County, Kenya. The study specifically sought to evaluate the relationship between board composition, board independence and board responsibility on the financial performance of farmers' cooperative societies in Kericho County. Agency Theory, Stakeholder Theory, and Resource Dependency theory were used to support the study's variables. The study adopted a correlational research design with a target population of 1261 employees. A sample size of 303 participants was determined scientifically using Yamane's (1967) formula. A structured questionnaire was used to collect data. The validity of the research instrument was enhanced by consultation with the subject experts. Cronbach's alpha coefficient, which was used to measure the instrument's reliability, was found to be 0.8999 and was considered sufficient for the study. The study's pilot was done in Bomet County, where 10% of the study sample size was used to assess the reliability of the research instrument. Descriptive statistics such as mean and standard deviation were employed to analyze data and inferentially using correlation and multiple regressions. Charts and frequency tables were used to present the results. The study established that the predictor variables could explain 59.6% of the variation in the financial performance of the cooperative societies. In addition, all the variables that are board independence (r=0.568, P<0.05), board composition (r=0.575, P<0.05), and board responsibility (r=0.671, P<0.05), were statistically significant and positively influenced the financial performance of the cooperative societies. The study concluded that corporate governance positively influences the financial performance of cooperative societies. From the findings, it is recommended that farmers’ cooperative societies need to take into consideration the diversity of boards of directors and have a fixed tenure the directors should serve. The executive directors should have the right to monitor and evaluate the operations of the cooperative societies. Policies should be developed to ensure that the nomination of board directors is done in line with the established framework of cooperative societies. Also, cooperative societies need to have effective and efficient resource management practices to minimize losses. Lastly, the board of management needs to review the existing policies to fit into the new business environment. The findings of this study would help farmers' cooperative society's management, farmers' cooperative society’s policymakers, and other researchers and scholars.