Effect of Liquidity and Dividend Pay-out on Financial Performance of Deposit Taking SACCOs in Kenya
(1) United States International University - Africa
(2) United States International University - Africa
(3) United States International University - Africa
(*) Corresponding Author
Abstract
Capital structure is one of the fundamental aspects to the success of Deposit Taking Savings (DPS) and Credit Cooperative Societies (CCS) as it influences the realization of its objectives and goals. The study intended to determine the effect of two capital structure determinants; liquidity and dividend payout, on financial performance as measured by Return on Assets of DPS and CCS, in Kenya. The study was grounded on the Pecking order and Free cash flow capital structure theories. The study utilized a mixed research design using primary and secondary data for the period 2013 to 2017. The population of the study was 174 DPS and CCS. Stratified and purposive sampling technique was employed. Descriptive statistics and a regression model were used to analyze the data. Results revealed that liquidity and dividend pay-out had a significant and positive effect on the financial performance of DPS and CCS in Kenya. The study concluded that liquidity and dividend pay-out play a significant role in the financial performance of DPS and CCS. The study recommends having in place an Assets and Liabilities Committee in each DPS and CCS that would help manage the assets and liabilities of the institution, ensuring adequate liquidity and cash flow management. Having in place a robust dividend policy that addresses; the basis of the rate of payments and activities that would require funding of which internally generated funds by way of dividend retention, is also critical.
Keywords
Full Text:
PDFReferences
Ademba, C. (2013). Speech for the Chief Executive Officer, SASRA during the SACCO leaders Forum, held at KICC on 26th August 2013.
Amedeo D. C., Susanne, E., Khurshed, A., & Simkovic, M. (2010). The effects of Ownership and Stock Liquidity on the Timing of Repurchase Transactions. Prentice-Hall.
Andrews A. M. (2015). Survey of Co-operative Capital. Madison, Filene Research Institute
Anyanzwa, J. (2018 Wednesday 26). Harambee Sacco to auction houses and land to boost cash flows. The East African Newspaper.
Bauer, P. (2004). Determinants of Capital Structure: Empirical Evidence from the Czech Republic. Czech Journal of Economics & Finance, 54(1-2), 2-21
Chaddad, F.H. & Cook, M.L. (2004). Understanding new cooperative models: ownership–control rights typology, Review of Agricultural Economics, 26 (3), 348-360.
Creswell, J. W. (2013). Research design: Qualitative, quantitative, and mixed methods approach. Sage Publications, Incorporated.
Dabrowska, J.F. (2009). Does Dividend Policy Follow the Capital Structure Theory? Managing Global Transitions.7 (4), 367-382.
Downing, M., Volk, T.A. & Schmidt, D.A. (2005), “Development of new generation cooperatives in agriculture for renewable energy research, development, and demonstration projects,” Biomass and Bioenergy, 28(5), 425-434.
Gentzoglanis, A. (2007). Regulation, governance and capital structure in cooperatives, Vertical Markets and Cooperative Hierarchies, Springer, Dordrecht, 151-167.
Henry, H. (2005). Guidelines for Cooperative Legislation, 2nd ed., International Labour Organization, Genève.
International Cooperative Alliance (2016). Cooperative Identity, Values & principles: Available at https://www.ica.coop/en/cooperatives/cooperative-identity.
Jensen, M.C. (1986). Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. The American Economic Review, 76(2), 323-329.
Jensen, M. C. & Meckling, W. H. (1976). The theory of the firm: managerial behavior, agency costs and ownership structure, Journal of Financial Economics, vol. 3(4), 305-360.
Kabure, M.J. (2014). The Effect of Liquidity on the Return on Investments for SACCOs in Nairobi. MSc Thesis. The University of Nairobi.
Kothari, C.R. (2004). Research Methodology: Methods and techniques. New Delhi. New Age International (P) Ltd publishers.
Labie, M. & Périlleux, A. (2008): Corporate Governance in Microfinance: Credit Unions, Working Paper CEB: No. 08-003.
Lipson, M. L., & Mortal, S. (2009). Liquidity and capital structure. Journal of Financial Markets, 12(4), 611-644.
Malombe, G.M. (2011). The Effects of Dividend Policy on Profitability of SACCOs with FOSAs in Kenya. MBA Thesis, the University of Nairobi.
Marete, G. (2016, April 8). Bandari Sacco officials in Kshs 5m blame game. The Daily Nation Newspaper.
Mikami K. (2010) Capital procurement of a consumer cooperative: Role of the membership market. Economic Systems 34(2), 178-197.
Milcah & Muturi (2016). Financial factors affecting the performance of deposit-taking savings and credit co-operative societies in Kenya: a case of Kiambu County. International Journal of Social Science & Information technology, 2(9), 1163-1179.
Mohammed, A. (2013). Speech by the Honourable Cabinet Secretary, Ministry of Industrialization and Enterprise Development during the SASRA Sacco Leaders Forum, at KICC on 26th August.
Munaita, P. (2018, April 17). Metropolitan Sacco probed over cash woes. The Daily Nation Newspaper.
Mvula, R. (2013). Report on Common issues affecting the performance of SACCO. Presented in Malawi, 8th August 2013.
Mwatu, M.D., Abdul, F. (2018). Capital Structure and the Financial Performance of Deposit-Taking Savings and Credit Cooperatives Societies in Kenya. International Journal of Current Aspects in Finance, 4(2), 71-88.
Myers, S. C. (1984). Finance Theory and Financial Strategy, Interfaces, 14(1), 126-137.
Myers, S.C. & Majluf N.S. (1984). Corporate financing and investment decisions when firms have information those investors do not have. The Journal of Financial Economics.13(2), 187-221
Nilsson, J. (2001). Organizational principles for co-operative firms, Scandinavian Journal of Management, 7(3), 329-356.
Nwankwo, G.O. (2004). Bank Management Principles and Practice, Lagos: Malt House Press Limited.
Novkovic, S. (2008). Defining the co-operative difference, Journal of Socio-Economics, 37(6), 2168-2177.
Nunnally, J. C. (1978). Assessment of Reliability. In: Psychometric Theory (2nd Ed.). NewYork: McGraw-Hill.
Poulsen, A. (2008). Corporate financial structure. Indianapolis: Library of Economics and Liberty.
Sacco Societies Regulatory Authority. (2017). The Sacco supervision annual report 2017.Nairobi. SASRA.
Sharma, P. & Paul, S. (2015). Does Liquidity Determine Capital Structure? Evidence from India. Global Business Review 16(1)84-89.
Shawal, M. (nd). Capital Structure of a firm; Meaning and its determinants: Available at https://www.yourarticleliabrary.com
Taiwo, A.M. (2012). An empirical analysis of capital structure on firm’s performance in Nigeria. International Journal of Advances in Management and Economics, 1(5), 116-124.
Titman, S. &Wessels, R. (1988). The Determinants of Capital Structure Choice, Journal of Finance, 43(1), 1-19.
Wang, Yung-Jang (2002). Liquidity management, operating performance, and corporate value: evidence from Japan and Taiwan. Journal of Multinational Financial Management, 12(2), 159-169.
Wanzala, O. (2019, February 28). Laxity in Bank purchase leaves teachers with 2 billion mess. Daily Nation.
Wasike, J. (2012). Corporate governance practices and performance at Elimu Sacco in Kenya, Unpublished MBA project, University of Nairobi.
World Council of Credit Unions (2008). 2008 Statistical Report. Available: http://www.woccu.org/documents/2008_Stat_Report
World Council of Credit Unions (2012). 2012 Statistical Report. Available: http://www.woccu.org/documents/2012_Stat_Report
World Council of Credit Unions (2017). 2017 Statistical Report. Available: http://www.woccu.org/documents/2017_Stat_Report
Yamane, Taro. (1967): Statistics: An Introductory Analysis, 2nd Ed., New York: Harper and Row.
DOI: http://dx.doi.org/10.33019/ijbe.v3i3.230
Article Metrics
Abstract view : 571 timesPDF - 346 times
Refbacks
- There are currently no refbacks.
This work is licensed under a Creative Commons Attribution 4.0 International License.
Integrated Journal of Business and Economics is licensed under a Creative Commons Attribution 4.0 International License.
