The Effect of Corporate Governance on the Financial Performance of Saccos Regulated by Sasra

Abstract

The main objective of this study was to investigate the effects of Corporate Governance on the financial performance of saccos regulated by SASRA. Specifically, this study examined board size – number of board members within a financial year, diversity (Gender) - number of women on the board, the compensation of the board- average compensation of all directors on the board, and the working experience of the board and how they affect the financial performance of saccos regulated by SASRA. Saccos financial performance was measured using Return on Assets (ROA). This study adopted a descriptive research design. The population of the study was all deposit taking saccos regulated by SASRA as at 2013. Secondary data was collected using documentary information from SASRA website, and saccos supervisory reports for the period 2009 to 2013. Descriptive statistics was used. Data was analyzed using a multivariate regression model. The study found board diversity, compensation and size affects the financial performance of deposit taking saccos positively. The board size-that is the number of serving board members in a given financial year was found to negatively affect the financial performance of saccos, the board experience as measured by number of years served in the board was also found to negatively affect the financial performance of saccos and firms age - that is the number of years the sacco has been operating since establishment, were found to negatively affect the financial performance of saccos. The study found a negative relationship between the number of board members and saccos‟ financial performance. It is therefore important to ensure that there should not be too many members on the board because a larger board‟s size will contribute negatively to firm‟s performance. Increase in number of women on board leads to an increase in saccos‟ financial performance. The shareholders should appoint female board members, as they were found to contribute positively sacco‟s performance. The study also found out that as board members compensation increased the firms‟ financial performance improved significantly; hence good compensation of the board members contributes positively to the firms‟ financial performance.