Determinants of financial distress in Deposit-Taking Savings and Cooperatives in Kenya: moderated by culture and firm size

Abstract

Financial distress among deposit-taking Savings and Credit Cooperative Organizations (DT SACCOs) is commonly reflected in an institution’s failure to adequately meet its financial commitments, often resulting in insolvency or major operational interruptions. Such challenges may arise from a combination of internal weaknesses and external pressures. In Kenya, several DT SACCOs have experienced collapse, leading to substantial losses for members. Without a clear understanding of the factors driving financial distress and eventual failure, the long-term viability of DT SACCOs remains uncertain. This study aimed to investigate the determinants of financial distress in deposit-taking savings and cooperatives in Kenya, while examining the moderating roles of organizational culture and firm size. Specifically, the study evaluated the influence of limited product offerings, management quality, and cash availability on financial distress among DT SACCOs. In addition, the moderating effects of culture and firm size were assessed. The research was anchored on Resource Dependence Theory and Agency Theory. A positivist research philosophy was adopted, consistent with the quantitative nature of the data. An explanatory research design was employed, utilizing secondary data collected through a structured data collection sheet. The study covered the period from 2019 to 2024, with the target population comprising all DT SACCOs registered and operational in Kenya by 2023. A total of 176 DT SACCOs formed the population, from which a random sample of 122 DT SACCOs was selected. Data analysis involved both descriptive and inferential statistical techniques. The findings revealed that limited product offerings had a significant positive effect on financial distress in DT SACCOs. Management quality was also found to have a significant positive relationship with financial distress, while cash availability exhibited a significant negative effect. Further results indicated that firm size significantly moderated the relationship between financial distress and its drivers, whereas organizational culture did not demonstrate a significant moderating influence. The study contributes to theory by reinforcing Resource Dependence Theory through evidence that product diversification reduces vulnerability to distress, while also suggesting that resource accumulation alone may be insufficient without strategic deployment. In relation to Agency Theory, the findings affirm that effective governance and aligned managerial incentives play a critical role in mitigating financial distress.