Examining the Effect of Ceo Turnover on Firm Performance of Selected Power Firms in East Africa

Abstract

The microfinance sector plays an instrumental role in fostering financial inclusion, especially in developing countries like Kenya. Despite their significance, there is a dearth of comprehensive studies examining the factors that influence the financial performance of microfinance banks in the region. This study sought to bridge this gap by investigating the impact of liquidity management on the financial performance of microfinance banks in Kenya. Anchored on the trade-off theory and supported by the agency theory and shiftability theory, the primary objective of this research was to understand the relationship between liquidity management, measured as the ratio of liquid assets to total assets, and financial performance, gauged using the Return on Assets (ROA). The study also factored in control variables: asset quality (ratio of NPLs to total loans), bank size (natural logarithm of total assets), and capital adequacy (ratio of total core capital to risk-weighted assets). A descriptive research design was employed. The study's population encompassed all 14 licensed Microfinance banks in Kenya, all of whom provided essential data. Relying on secondary data, the research extracted information from annual published financial reports of these banks over a five-year period (2018-2022), sourced from the Central Bank of Kenya's publications. Data analysis was rigorous, employing descriptive statistics, correlation analysis, and regression analysis. The regression model revealed an R Square of 0.440, indicating that 44% of the variance in the ROA could be explained by the independent variables. Liquidity management exhibited a positive relationship with ROA (Beta = 0.201, p = 0.041). Asset quality showed a significant inverse relationship with ROA (Beta = - 0.372, p = 0.000), and bank size positively influenced ROA (Beta = 0.495, p = 0.000). However, capital adequacy was not a significant predictor (Beta = 0.068, p = 0.469). The study concludes that liquidity management emerged as a crucial determinant of financial performance in Kenyan microfinance banks. Moreover, while asset quality negatively impacted financial performance, larger banks recorded better ROA, signaling benefits of scale. Contrarily, capital adequacy, though essential for long-term stability, did not significantly influence short-term profitability. It is recommended that regulatory bodies emphasize stringent liquidity management regulations, ensuring microfinance banks strike a balance between retaining sufficient liquidity and channeling resources towards growth. Furthermore, to mitigate the adverse impacts of poor asset quality, microfinance banks should adopt rigorous credit risk assessment procedures. Future research could benefit from primary data collection, incorporating perspectives of microfinance bank stakeholders for deeper insights. A comparative cross-country analysis might offer a broader perspective on regional dynamics influencing financial performance