Abstract
Capital structure is one of the fundamental aspects to the success of Deposit Taking Savings (DPS) and Credit Cooperative Societies (CCS) as it influences the realization of its objectives and goals. The study intended to determine the effect of two capital structure determinants; liquidity and dividend payout, on financial performance as measured by Return on Assets of DPS and CCS, in Kenya. The study was grounded on the Pecking order and Free cash flow capital structure theories. The study utilized a mixed research design using primary and secondary data for the period 2013 to 2017. The population of the study was 174 DPS and CCS. Stratified and purposive sampling technique was employed. Descriptive statistics and a regression model were used to analyze the data. Results revealed that liquidity and dividend pay-out had a significant and positive effect on the financial performance of DPS and CCS in Kenya. The study concluded that liquidity and dividend pay-out play a significant role in the financial performance of DPS and CCS. The study recommends having in place an Assets and Liabilities Committee in each DPS and CCS that would help manage the assets and liabilities of the institution, ensuring adequate liquidity and cash flow management. Having in place a robust dividend policy that addresses; the basis of the rate of payments and activities that would require funding of which internally generated funds by way of dividend retention, is also critical.
Highlights
A savings and credit cooperative society (SACCO) is a financial organization formal in nature, owned, controlled, used, and democratically directed by members themselves to address their current economic, social, and cultural needs (International Cooperative Alliance (ICA), 2016)
The study findings showed that liquidity had a positive impact on the return on investments in the SACCOs
Liquidity and Dividend Payout as Determinants of Capital Structure From the primary data, we find the level of importance for the determinants of capital structure in the SACCOs, the mean values represent points of convergence of the different respondent's opinions regarding the importance of the determinants of capital structure
Summary
As at 2008, there were more than 53,000 SACCOs/Credit Union/Cooperative Financial Institution (CFI)/Mutual, serving about 97 countries with membership of over 185million, penetration of 7.7%, Savings of US$ 995. As at 2017, there were more than 89,000 SACCO’s/Credit Union/ CFIs/ Mutual, serving 117 countries with membership of over 260million, Penetration of 9.09%, Savings of US$ 1.7Trillion, Loans of US$ 1.5 Trillion, reserves of US$ 195Billion and total assets of 2.1 Trillion (WOCCU, 2017). Financial performance is a measure of how well an organization employs its primary mode of industry to generate revenue It involves determining the outcomes of an organizations policies and actions in financial terms based on the apportioned resources to the most feasible ventures that produce earnings which maximize investor’s wealth. Different methods can be used to measure financial performance, but all measures should be viewed in aggregation for example financial ratio analysis which has been a convenient way of viewing a summary picture of SACCOs (Milcah & Muturi, 2016)
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