Effect of Financing Decisions on Performance of Deposit-taking Saccos in Nairobi County, Kenya

Abstract

Financing decisions and performance are significant concepts among firms. Acknowledging this, several interventions have been undertaken by firm managers to address weaknesses in financing decisions. Despite the efforts in making the best financing decisions, firms still struggle to attain their performance goals. This therefore makes firm managers unable to decipher the contribution that financing decisions have on the performance of firms. The inability of firm managers to make financing decisions can be linked to the difficulty in determining exactly the financing structure that is optimal for their firms that can help increase performance. The main aim of this research was to determine financing decisions effect on performance of DT-SACCOs in Nairobi County, Kenya. The independent variables for the research were financial leverage, dividend policy and working capital while the dependent variable was performance measured using ROA. The control variable was firm size. The study was guided by trade-off theory, information signaling theory and liquidity preference theory. Descriptive research design was utilized in this research. The 43 DT-SACCOs in Nairobi County, Kenya as at December 2021 served as target population. The study collected secondary data for five years (2017-2021) on an annual basis from SASRA and individual DT-SACCOs annual reports. Descriptive, correlation as well as regression analysis were undertaken and outcomes offered in tables followed by pertinent interpretation and discussion. The research discovered a 0.5411 R square value implying that 54.11% of changes in DT-SACCOs performance can be described by the four variables chosen for this research. The multivariate regression analysis further revealed that individually, financial leverage has a negative effect on performance of DT-SACCOs (β=-0.337, p=0.001). Dividend policy exhibited a positive and significant effect on performance of DT-SACCOs (β=0.858, p=0.000). Firm working capital also exhibited a positive and significant effect on performance (β=0.178, p=0.029). The control variable which was firm size displayed a positive and significant performance influence as shown by (β=0.679, p=0.000). The study recommends that DT-SACCOs should work at improving their working capital and their dividend policy as they significantly affect their performance. Future research ought to focus on other DT-SACCOs in Kenya to corroborate or refute the findings of this research.