ANALYSIS OF CORPORATE GOVERNANCE PRACTICES AND FINANCIAL PERFORMANCE OF SAVINGS AND CREDIT CORPORATIVE SOCIETIES: A CASE STUDY OF KITE SACCO SOCIETY LIMITED KISUMU CITY, KENYA

ROBERT ODEK, MR. FRANCIS ANYIRA

Abstract


The purpose of this study was to analyze the effect of corporate governance practices on financial performance of Saccos; a case of KITE Sacco society in Kisumu city. The specific objectives of the study were to: assess the effects of board composition, establish the effects of number of non-executive directors and determine the influence of SACCO leadership on the financial performance of KITE SACCO society. The study was guided by a self-conceptualized framework with corporate governance practices as independent variables and financial performance of Saccos as the dependent variable. It adopted causal research design with all the 19 targeted staff members of the Sacco forming the sample size. The study used both primary and secondary data. A semi-structured self-administered questionnaire to the Board of the Sacco, and staff members was used to collect primary data. Secondary data was collected through content analysis. Validity and reliability of the instrument was checked using expert reviews. Descriptive statistics such as mean and standard deviation was employed to analyze the data and inferential statistics such as Pearson’s correlation. Presentation was done by the use of tables and charts. The study revealed that board composition is the most prevailing factor that affects financial performance at KITE Sacco (0.658, p< 0.05) and strongly affects Sacco leadership (0.789, p<0.001). Also realized was that Sacco Leadership strongly affects financial performance at KITE (0.835, p<0.01). Besides, the study evidenced that existence of non-executive directors positively affects financial performance (0.381, p<0.05), weakly affects board composition (0.436, p>0.01) and strongly affects Sacco leadership (0.053, p<0.05). The study concludes that board composition is the most prevailing factor that affects financial performance at KITE Sacco and as well affects the Sacco leadership. Also, the study showed that existence of non-executive directors within the Sacco positively affects financial performance but weakly affects board composition and strongly affects KITE Sacco leadership. These findings may assist KITE Sacco leadership identify how various aspects of corporate governance practices (board composition, existence of non-executive directors) affect their operations as well as ensure that the breakdown of spending across projects is clear, and accounting records properly maintained. Further, the study may provide information to potential and current scholars in regard to the relationship between corporate governance and financial performance of SACCO societies.


Full Text:

PDF

References


Abor, J. (2007), "Corporate governance and financing decisions of Ghanaian listed firms", Corporate Governance: International Journal of Business in Society, Vol. 22 No.1, pp.83-92.

African Microfinance Transparency (AMT) report (2008) Transversal Analysis of Microfinance Institutions in Africa 2nd Edition, ADA publishers, Luxemberg.

Agumba Nicholas (2008). Effectiveness of the Sacco governance model. Kuscco Limited Nairobi- Kenya at Africa microfinance conference – Benin 2008.

Allen, .E & Maghimbi, S. (2009) African cooperatives and the financial crisis; Coop AFRICA Working Paper No.3

AMFIU Report (2008): Microfinance Tomorrow: Refocusing the vision for the Industry in Uganda; An Analytical booklet for the proceedings of the 2008 AMFIU Pre AGM Workshop.

Bauer, K., (2007). Detecting abnormal credit union performance. Journal of Banking and Finance, Vol. 32, pp 573-586.

Bauer, R, & Guenster, N (2003). Good corporate governance pays off! Well-governed companies perform better on the stock market". International Association for Business and Society Proceedings, pp.205-10.

Baysinger, B., & Hoskinsson, R.E. (1990). The composition of the board of directors and strategic control: effects of corporate strategy", Academy of Management Review, Vol. 15 No.1, pp.72-

Bebchuk, L., Cohen, A. (2004), The Cost of Entrenched Boards, National Bureau of Economic Research, Inc., Cambridge, MA, NBER Working paper, No.10587 .

Bhagat, S. & Black, B. (2000). Board Independence and Long Term Firm Performance. A

Bhagat, S., Black, B. (2002), "The non-correlation between board independence and long-term firm performance", Journal of Corporation Law, Vol. 27 pp.231-73.

Bibi, A. (2006). Tanzania’s Cooperatives Look to the Future. Retrieved from, http://www.andrewbibby.com/pdf/Tanzania.pdf, on 25/02/2013.

Branch, .B., Baker C. (2005). Credit Union Governance: Unique Challenges Nexus, No. 41.

Brown, D.L., Caylor, M.L. (2004), “Corporate governance and firm performance, is working paper, Georgia State University. Atlanta, GA, .

Carter, C.B., Lorsch, J.W. (2004), Back to the Drawing Board: Designing Corporate Boards for a Complex World, Harvard Business School Press, Boston, MA, .

Central Bank of Kenya, (2001). Bank Supervision Annual Report, C

Claessens, J.P. Fan, P.H., Wong, T.J. (2002), A study of the relationship between the independent director system and the operating performance of the business in Taiwan", working paper.

Consultative Group to Assist the Poor (CGAP) Country Level Assessment –Uganda April 2006.

Coombs, P., Watson, M. (2001), "Corporate reform in the developing world", McKinsey Quarterly, No.4, pp.90..

Cooper, W. & Schindler, D. (2003).Approaches to Social Research. New York: Oxford University Press. , A. (2004). Government Budgeting and Expenditure Controls: Theory and Practice Published by International Monetary Fund.

Corporate governance practices henceforth vary significantly among companies (Nam and Nam 2004). There is need to develop systems for monitoring and evaluating compliance with good corporate governance practices (Gatamah, 2002)

Cuevas, C and Fischer, K (2006). Cooperative Financial Institutions: Issues in

Dahya, J., McConnell, J.J., Travlos, N.G. (2002), "The Cadbury Committee, corporate performance, and top management turnover", Journal of Finance, Vol. 57 No.1, pp.461-83.

Dissertation for the Award of Degree of Makerere University.

Dong, F. and Featherstone, A. (2004). Technical and Scale Efficiencies for Chinese Rural Credit Cooperatives: A Bootstrapping Approach in Data Envelopment Analysis. Working Paper 04-WP 366, Center for Agricultural and Rural Development, Iowa State University.

Drobetz K., Eisenberg, T., Sundgren, S., Wells, M.T.. (2003) Executive ownership, corporate value and executive compensation: a unifying framework", Journal of Banking & Finance, Vol. 20 pp.1135-59.

Faccio, M., Lasfer, M.A. (2000), "Do occupational pension funds monitor companies in which they hold large stakes?", Journal of Corporate Finance, Vol. 6 pp.71-110.

Gatamah K., (2002). Launching Corporate Governance in Africa with an emphasis on Kenya. Washington, DC: Center for international Private Enterprise.

Gatauwa James Mwangi (2008) the relationship between corporate governance practices and stock market liquidity for firms listed on the Nairobi Stock Exchange. Unpublished MBA Project. University of Nairobi.

Gemmill and Thomas (2004) ), "Board composition, managerial ownership and firm performance: an empirical analysis", The Financial Review, Vol. 33 pp.1-16.

Gompers, A., Ishii, J.L., Metrick, A. (2003), "Corporate governance and equity prices", Quarterly Journal of Economics, Vol. 118 No.1, pp.107-55.

Governance, Regulation and Supervision, World Bank Working Paper No 82.

Hakikazi, (2006). Cooperatives and Development in Tanzania: A Simplified Guide to the Cooperative Development Policy and the Cooperative Societies Act of Tanzania Mainland. Retrieved from, http://www.hakikazi.org/papers/Cooperatives.pdf, on 25/02/2014.

Hermalin, B. & M. Weisbach. (1991). The Effects of Board Composition and Direct Incentives on Firm Performance Financial Management 20(4), 101–112.

Hermes, L. (2008). Recent Development in Corporate Governance. A Journal of Corporate

Higgs, B. (2004). A survive of Corporate Governance. Journal for Corporate Finance. 2(1), 872-

Huson, M. (2001), "Internal monitoring and CEO turnover: a long-term perspective", Journal of Finance, Vol. 56 No.6, pp.2265-97.

Huson, M. (2001), "Internal monitoring and CEO turnover: a long-term perspective", Journal of Finance, Vol. 56 No.6, pp.2265-97.

Hussein, K. & B. Kiwia. (2009). Examining the Relationship between Female Board members and Firm Performance: A panel study of US firms. African Journal of Finance and Management 18(1), 20.

Jebet, L. (2009). Corporate Governance Structures in Public Listed Compassionating in Kenya.

Jensen, M.C., Murphy, K. (1990), "CEO incentives: it's not how much you pay but how", Journal of Applied Corporate Finance, Vol. 3 No.3, pp.36-49.

John, K., Senbet, L. (1998), "Corporate governance and board effectiveness", Journal of Banking and Finance, Vol. 22 No.4, pp.371-403.

Kaplan, S.N., Minton, B.A. (1994), "Appointments of outsiders to Japanese boards: determinants and implications for managers", Journal of Financial Economics, Vol. 36 No.2, pp.225-58.

Karumuna, L. and Akyoo, A. (2011). Rural Finance Challenges in Tanzania-the case of Kibaigwa Financial Services and Credit Cooperative Society (KIFISACCOS) in Kongwa District. Business Minds Africa, Case series, number 2 June 2011.

Kato, J. (2009 December 23). Leadership makes or breaks SACCOs in Uganda, The New Vision

Klapper, L, Love, I (2002), "Corporate governance, investor protection and performance in emerging markets", World Bank Policy Research, Working Paper 2818,

Klapper, L.F., Love, I. (2003), "Corporate governance, investor protection, and performance in emerging markets", Journal of Corporate Finance, Vol. 10 No.5, pp.703-28.

Kothari, C. (2007). Pretesting in questionnaire design: The impact of respondent characteristics on error detection. Journal of the Market Research Society, 36(October), 295–314.

Kyazze, L.M. (2010). Cooperatives; the Sleeping Economic and Social Giants in Uganda, Coop AFRICA Working Paper No.15

Leblanc, R.W., Gillies, J.M. (2005), Inside the Boardroom: How Boards Really Work and the Coming Revolution in Corporate Governance, J. Wiley & Sons Canada, Toronto, .

Magali, J.J. (2014). The Influence of Leadership, Corporate Governance and Regulations on Credit Risk Management: The Study of Rural SACCOS from Tanzania. Management and Administrative Sciences Review, Volume: 3, Issue: 2. (Article in Press).

Magali, J.J. and Pastory, D. (2013). Technical Efficiency of the Rural Savings and Credits Cooperative Societies in Tanzania: A DEA Approach. International Journal of Management Sciences and Business Research, Vol-2, Issue 12:49-61.

Maghimbi, S. (2010). Cooperatives in Tanzania mainland: Revival and growth. CoopAFRICA Working Paper No.14. Series on the status of cooperative development in Africa. International Labour Organization Office in Dar es Salaam, Tanzania.

Mak, Y.T., Yuanto, K. (2003), "Board size really matters: further evidence on the negative relationship between board size and firm value", Pulses, Singapore, .

Martin, K. &Acuna, C. (2002).SPSS for Institutional Researchers. Lewisburg, Pennsylvania: Bucknell University Press.

Monks, R, Minow, N (2004), Corporate Governance, Blackwell Business, Cambridge, MA, .

Mugenda, O. &Mugenda, A. (2003). Research Methods: Quantitative & Qualitative Approaches. Nairobi: Acts Press.

Mwakajumilo, (2011). The Role of Informal Microfinance Institutions in Saving Mobilization, Investment and Poverty Reduction. A Case of Savings and Credit Cooperative Societies (SACCOS) in Tanzania from 1961-2008. Unpublished Doctoral Thesis, St. Clements University.

Nam S. and Nam C. (2004). Corporate Governance in Asia: Recent Evidence from Indonesia, Republic of Korea, Thailand and Malaysia, Asian Development Bank Institute.

Nam S. and Nam C. (2004). Corporate Governance in Asia: Recent Evidence from

Namisi, J. (2007). Corporate Board of Directors, Team Processes and its Impact on the

Newman, H.A., Mozes, H.A. (1999), "Does the composition of compensation committee influence CEO compensation practices", Financial Management, Vol. 28 No.3, pp.41-54.

Nyororo, C. (2006). Carryover and backfire effects in marketing research. Journal of Marketing Research, 30, 52–62.

OECD (2004), "Principles of corporate governance", OECD, pp.3-42.

Sanda, A., A. Mikailu, & T. Garba. (2005). Corporate governance mechanisms and firm financial performance in Nigeria. African Economic Research Consortium (pp. 47). Sokoto.

Schilling, S (2003), "Does corporate governance affect firm value?", abstract of Diploma paper, available at,

Schmidt, G.K. and Zimmermann A.M., (2004), "Theory of the firm: managerial behavior, agency cost and ownership structure", Journal of Financial Economics, Vol. 3 pp.305-60.

Shaw, L. (2006) Overview of Corporate Governance Issues for Co-operatives: DISCUSSION PAPER Commissioned by the Global Corporate Governance Forum for the Working Meeting on Corporate Governance and Co-operatives.

Shiundu, B. (2010). A Survey of Listed Firms in the NSE with Return on Equity as a Performance Indicator in Relation to their Corporate Governance Ratings. MBA Dissertation, JKUAT.

Shivdasani, A., & Zenner, M. (2004), "Best practices in corporate governance: what two decades of research reveals", The Bank of American Journal of Applied Corporate Finance, Vol. 16 No.2/3, pp.29-37.

Shleifer, A., Vishny, R. (1997), "A survey of corporate governance", Journal of Finance, Vol. LII No.2, pp.1131-50.

Solomon, J., Solomon, A. (2004), Corporate Governance and Accountability, John Wiley, New York, NY,

Ssemwanga, F. (2009, April 8) SACCOs could achieve a lot with good governance, The Daily Monitor.

Standard Level of School Working Paper No. 188. Retrieved from

Swaps and Derivatives Association (ISDA) (2002), "17th Annual General Meeting, Berlin, April", .

Tesfamariam, K., Tesfay H. & Tesfay, A. (2013). Relative Efficiency of Rural Saving and Credit Cooperatives: An Application of Data Envelopment Analysis. International Journal of Cooperative Studies Vol. 2, No. 1, 16-25.

Vafeas, N. (1999), "Board meeting frequency and firm performance", Journal of Financial Economics, Vol. 53 No.1, pp.113-42.

Wen, Y., Rwegasira, K., & Bilderbeek, J. (2002), "Corporate governance and capital structure decisions of Chinese listed firms", Corporate Governance: An International Review, Vol. 10 No.2, pp.75-83.

Williams (2000), Proxy contests and the efficiency of shareholder oversight, Journal of Financial Economics, Vol. 20 pp.237-65.


Refbacks

  • There are currently no refbacks.