Corporate Governance, Firm Size and Financial Performance of Regulated Saccos in South Rift Region, Kenya

Abstract

Sound corporate governance is very critical in improving the financial performance of any organization. Adoption of corporate governance by SACCOs is the commitment to properly manage it while promising to pay back a reasonable return on money invested. SACCOS are facing myriad of challenges which have created inefficiency and lack of competitiveness hence impair their financial performance and this has necessitated the need for this study to fill the knowledge gap in the existing literature. This study sought to establish the moderating effect of firm size on the relationship between corporate governance and financial performance of regulated SACCOs in South Rift Region, Kenya. The study specifically sought to; examine the moderating effect of firm size on the relationship between board composition and financial performance; determine the moderating effect of firm size on the relationship between audit committee characteristics and the financial performance; evaluate the moderating effect of firm size on the relationship between transparency and financial performance; analyse the moderating effect of firm size on the relationship between relationship between risk management and financial performance; establish the moderating effect of firm size on the relationship between corporate governance and financial performance of regulated SACCOs in South Rift Region, Kenya. The study was anchored on agency theory, stakeholder theory and signalling theory. A mixed research design which combined both the elements of quantitative research and qualitative research was adopted for this study. All the 18 SASRA regulated SACCOs in south rift region form the target population. Primary data collected using structured questionnaire where the respondents were the Chief Executive Officers, Board Members, Chief Finance Officers and Chairperson of audit committee. The study did census of all 18 SASRA regulated SACCOs in South Rift Region since the population was small where 216 respondents were purposely selected and were 18 Chief Executive Officers, 162 Board Members, 18 Chief Finance Managers and 18 chairpersons of Audit Committee. The validity of research instrument was achieved through expert review while the a reliability of research instrument was tested using Cronbach Alpha which yielded a coefficient of 0.841. Data collection used structured questionnaire where descriptive statistics was used to provide mean and standard deviation. Multiple regression as inferential statistics was used for testing the hypothesis. The data are presented using tables and charts. The study found that there was strong, positive and significant relationship between firm size on corporate governance and financial performance where the strongest correlation was established between financial performance and transparency (r=0.905; p<0.05); followed by risk management (r=0.864; p <0.05); audit committee characteristics (r=0.792; p <0.05); board composition (r=0.728; p <0.05); and firm size (r=0.381; p <0.05). The findings showed that the R square before introducing a moderating variable was 84.0% and this changed to 84.2% after the introduction of firm size which implies that firm size positively and significantly moderated the relationship between corporate governance practises and financial performance by 0.02%. The findings may also form basis for further research as well as add to the pool of literature on corporate governance and financial performance.