The Effect of Liquidity Management on the Financial Performance of Deposit Taking Saccos in Nairobi County

Abstract

The purpose of the study was to determine the effect of liquidity management on the financial performance of Deposit taking Saccos in Nairobi County. A large body of research theoretically asserts positive association between good liquidity management and financial performance of financial institutions. Little attention has been paid to the liquidity management of Saccos which are contributing direct to the welfare of the citizen and economy growth. This research addresses some conceptual and measurement issues related to the study of liquidity management and its effects on financial performance of Deposit taking Saccos in a Nairobi county context. A sample of the 27 Deposit taking Saccos that are licensed under Sacco Society Regulatory Authority was carried out where secondary data was collected from their published financial statement between years 2010 to 2014. Sasra which is an institution mandated to regulate the operation of Deposit taking Saccos was the source of data and hence the reliability of the data. The researcher used descriptive statistics, regression analysis and correlation efficient method. In order to test this relationship regression analysis was run with total profit before tax to total assets as the dependent variable and the liquidity, funding liquidity risk, operational efficiency, and quick ratio log of total assets as the independent variables. The findings were that financial performance as measured by profit before tax over total assets is positively related to Liquidity, funding liquidity risk, operational efficiency, quick ratio and log of total assets. The study therefore recommends that the deposit taking Saccos should put in place the best liquidity management practices to increase their financial performance.