Does Funding Structure Mediate the Relationship Between Corporate Governance and Financial Performance? Evidence from Deposit Taking Sacco's in Kenya

Abstract

Abstract The study focused on assessing how the funding structure mediates the relationship between corporate governance (CG) and financial performance (FP) in deposit-taking Savings and Credit Cooperative Organizations (SACCOs) in Kenya from 2018 to 2022. The research covered all 172 deposit-taking SACCOs in Kenya, using longitudinal data sourced from annual financial reports and supervision reports by the Sacco Societies Regulatory Authority (SASRA). To estimate the relationships, the fixed effect model was utilized, justified by the Hausman specification test. The findings indicated that the funding structure acts as a partial mediator in the CG-FP relationship. This implies that while CG has a direct impact on FP, the funding structure also significantly influences this relationship. These findings are critical for theoretical development, as they enhance the understanding of how CG affects FP through the funding structure. Moreover, the results have significant policy implications. For regulators like SASRA, the findings provide insights into crafting policies that strengthen CG practices to improve FP with in SACCOs. For SACCO management, the study offers guidance on developing strategies that align their funding structures with effective governance practices to achieve better financial outcomes. Keywords: Corporate Governance, Funding Structure, Financial Performance; Deposit Taking SACCO’s.