Relationship between firm size and financial performance of deposit taking savings and credit cooperative societies in Kenya

Abstract

The SACCO industry contributes an average of 45% of Kenya gross domestic product (GDP). This contribution is noticeably high hence needs to be maintained. The key factors that contribute to this good performance also need to be identified and documented so that other industries can also borrow a leaf. Several studies have been carried out evaluating factors that contribute to financial performance; some of these factors include size, credit risk, management efficiency and operational efficiency. Most of these studies have resulted to contradicting results on the relationship that exists between firm size and financial performance. This study aimed to establish whether there exists a relationship between firm size and financial performance. Regression analysis was used in the analysis to establish the relationship between the variables. Y was the return on asset while the X was the firm size, liquidly, capital adequacy and age of the firm. Descriptive design was adopted to establish the relationship. The study used 5 years secondary data for the period between year 2012 and 2016, a sample size of 39 SACCOs was taken from the 176 licensed by SASRA as at 31 December 2016. The regression analysis results established that, if all the other factors are held constant, the return on asset will be 15.9%. A unit change in firm size will change the return on asset by 8%: A unit change in liquidity will change return on asset by 1.1%, while unit change in capital adequacy will change the return on assets by 11.6% and a unit change of age does not change the return on asset. This implied that capital adequacy had the highest influence on return on asset followed by firm size then liquidity. The study concludes that: Capital adequacy, firm size; liquidity and age have a positive relationship with financial performance although only capital adequacy and firm size have a significant relationship.