Corporate Governance Practices, Liquidity and Dividend Policy of Deposit Taking SACCOs in Kenya

Abstract

Corporate governance is increasing interest to Saccos as it is contemplated to be one of the weakest areas in the finance industry. Sacco Societies Regulatory Authority insisted that any decisions to pay dividends must be made with utmost diligence considering the potential impact on liquidity and earnings of the Saccos. Lack of proper financial policies, regulation and supervision of Saccos business is a big challenge in the Saccos movement in Kenya. Therefore, this study sought to examine corporate governance practices, liquidity and dividend policy of deposit taking Saccos in Kenya. The specific objectives were to determine effect of board characteristics, audit committee composition, ownership structure, transparency and liquidity on dividend policy of Deposit Taking Saccos in Kenya. The study is guided by agency cost theory, stewardship theory, liquidity preference theory and dividend irrelevance theory. The study adopted causal design and descriptive survey design and anchored on the philosophy of pragmatism. The targeted population in this study was 403 stakeholders of deposit taking Saccos in Kenya. A sample size of 201 was selected using stratified simple random sampling. The unit of inquiry was chairperson/director and Chief executive officer/Chief finance officer. Primary data was collected using structured questionnaires while secondary data was collected from 2017 to 2021. A pilot study was conducted on 20 Saccos in Starehe Sub County, Nairobi County to establish reliability and validity of research instruments. Cronbach Alpha was employed to ascertain reliability, whereas content and construct validity were utilized to attain validity. The data underwent analysis through the application of both descriptive and inferential statistics. The descriptive analysis encompassed the examination of frequencies, percentages, mean, and standard deviation, whilst the inferential analysis entailed the utilization of correlation and regression techniques. The investigation ensured that the assumptions of linear regression were satisfied before conducting numerous linear regressions. Data was presented in form of tables. The results revealed that there is a positive significant relationship between corporate governance practices and dividend policy of DT Saccos in Kenya P of 0.000<0.05. On addition of liquidity, all variables remained significant as t values were greater than 1.96 at 95% significance level, board characteristics t value 12.212, audit committee composition t=12.914, ownership structure t= 10.833 and transparency of financial statements t =13.519, furthermore the P of 0.000<0.05. It is conclusive that deposit-taking Saccos in Kenya focused on board characteristics as envisaged, audit committee composition, ownership structure, transparency procedures of financial data and liquidity which had positive significant effect on dividend policy. The study recommended that Sacco’s should diverse the board features to ensure they accommodate the dividend policy framework. Gender parity should be considered always. Sacco’s to continuously refine audit committee. Well composed audit committee on basis of skills and experience would add value on dividend policy. Sacco’s should allow members to save as many shares as possible to strengthen their ownership ability in the Saccos for better dividends. Sacco’s should have policies regarding disclosure and financial data transparency. Sacco’s should maintain the minimum liquidity threshold, advocate for deposits, withdrawals, savings, investment and dividend payout.