Financial Structure, Asset Structure, Board Demographics And Operating Efficiency Of Housing Co-Operative Societies In Nairobi City County, Kenya

Abstract

Empirical evidence on co-operatives’ house financing is scanty and does not provide a clear link between financial structure and operating efficiency. The purpose of this study was to establish the effect of asset structure and board demographics on the relationship between financial structure and operating efficiency. The specific objectives using housing cooperatives in Nairobi County, Kenya, determined the relationship between financial structure and operating efficiency, established the intervening effect of asset structure on financial structure in estimating operating efficiency, assessed board demographics moderating effect on the relationship between financial structure and operating efficiency, and finally examined the significance of the combined effect of financial structure, asset structure, and board demographics on operating efficiency. The pecking order theory was the anchoring theory of the study while the study design was descriptive cross-sectional research design. The key respondents for primary data were chief executive officers/administrators and the board members. The data covered a period of five years from 2012 to 2016 where 173 housing co-operatives were targeted. Data was analyzed for 87 housing cooperatives which constituted a 50.3% of the target population. A two-stage model, the data envelopment analysis and regression analysis was applied in the analysis. The average operating efficiency score was at 67.76 % for all housing co-operatives. Thus, the DEA results for DMUs indicated that most of the housing co-operatives were operating at wrong scale of operation and suffered from poor management. Finally the regression results showed that financial structure had significant effect in predicting operating efficiency. On further analysis the asset structure transmitted changes on financial structure in predicting operating efficiency while changes in the magnitude of board demographics greatly influence the strength of the relationship between financial structure and operating efficiency. Besides, the findings show that financial structure, asset structure, and board demographics jointly contributed significantly to changes in operating efficiency. The findings of this study present DEA as an alternative approach of measuring operating efficiency of housing cooperatives, and introduces application of Shannon-wiener’s index, a biological and ecological monitoring index in construction of board demographics indices. The findings will help policymakers to devise ways of optimizing resources and recommend areas of improvement to attain operating efficiency. Therefore the study recommends cessation of the registration of housing co-operatives and growing organically or merger of small co-operatives to reap benefits of economies of scale. Lastly, co-operatives’ members should consider electing board members of different level of education since it could reduce shortcomings of groupthink hence increased efficiency. DEA technique is sensitive to data noise and measurement errors. Therefore, other studies should apply stochastic frontier analysis as an alternative to data envelopment analysis in estimating efficiency.