Examination of the relationship between corporate governance and financial soundness of licensed deposit taking saccos in Kenya

Kariuki, David Kimenju

Examination of the relationship between corporate governance and financial soundness of licensed deposit taking saccos in Kenya

Date

2016

Authors

Kariuki, David Kimenju

Publisher

Strathmore University

Abstract

The aim of this study was to explore the relationship between corporate governance and the financial soundness of the licensed deposit taking SACCOs in Kenya. The study specifically examined how boards’ responsibility, transparency and disclosure and internal controls influence the financial soundness of licensed deposit taking SACCOs in Kenya. Financial soundness was measured using PEARLS monitoring systems. A questionnaire was administered to the CEOs and senior management officers of the SACCOs. These subjects were deemed conversant with the issues of corporate governance in their respective SACCOs. Regression analysis was used to establish the relationship of corporate governance on the financial soundness of the SACCOs. The study found out that internal controls played a significant role in corporate governance. Three variables namely; board responsibility, transparency and disclosure and internal controls were found to be key factors in financial soundness of the SACCOs. However in ranking according to their role in financial soundness of SACCOs, board responsibility was considered the least. Regression analysis showed that when protection and rates of return coefficients were used as a measure of financial soundness; board responsibility, transparency and internal controls did not explain the variation individually. When the effective financial structure and liquidity coefficients were used, the three independent variables explained the variation. Multiple regressions showed that the variations in the financial soundness were explained by the three independent variables. The study concludes that CEOs and seniors officers can also measure the importance of financial soundness using PEARLS since it evaluates and monitors the SACCOs financial systems more than the usual CAMEL method.