EFFECT OF INVESTMENT DECISIONS ON THE FINANCIAL PERFORMANCE OF SACCOS IN BUNGOMA COUNTY, KENYA

Abstract

Financial performance of SACCOs in Kenya has been a major concern in recent years, as they play a critical role in promoting financial inclusion and economic development in the country. SACCOs in Kenya have been criticized for making poor investment decisions, leading to losses and declining financial performance. Several studies have explored the effect of investment decisions on the financial performance of SACCOs. However, these studies have not been able to fully solve the financial performance problem facing SACCOs in Kenya due to various factors. The study on investment decisions' effect on SACCOs' financial performance in Bungoma County was significant for promoting financial inclusion and overcoming challenges faced by SACCOs, including competition from digital financial services. The study aimed at examining the effect of investment decisions on the financial performance of Savings and Credit Cooperative Organizations in Bungoma County, Kenya. The research focused on three specific objectives: expansion, replacement and research and development decisions and their effect on financial performance. The study was guided by three theories that include Tobin q theory, Transaction cost theory and Modigliani-Miller Theorem. To achieve its objectives, the study used a quantitative cross-sectional survey design. A total of 600 respondents were targeted from where 240 respondents were sampled including CEO, CFO, accounting staff and administrative staff. Stratified, proportionate and simple random sampling was used. To ensure the validity and reliability of the data collected, the researcher used various methods. Firstly, expert review, construct and criterion validity were employed to ensure validity of the questionnaires used. Secondly, the Cronbach alpha method was used to test the reliability of the questionnaires. A pilot study was conducted to identify any issues with the questionnaires before the actual study. After collecting data, it was cleaned and coded to ensure that was ready for analysis. Descriptive statistics such as frequency and percentages were computed to summarize the investment decisions and financial performance. Expansion decision was a significant predictor of financial performance (r = 0.708, p-value =0.000 < 0.05). R-square of 0.501 implied that variation of financial performance at 50.1% was explained by expansion decision. Replacement decision was a significant predictor of financial performance (r= 0.738, p-value = 0.000<0.05). R-square of 0.544 implied that variation of 54.4% of financial performance was explained by replacement decision. The results also confirmed that at 0.05 significance level research and development was a significant predictor of financial performance (r = 0.673, p-value =0.000< 0.05). R-square was 0.453 implied that variation of 45.3% of financial performance was explained by research and development. The recommendations were that on expansion decisions, SACCOs should open more branches and invest in technology so as to maintain the significance level on financial performance. Replacement decisions should avoid outdated technology, design amicable policies and procedures so as to maintain the significance level on financial performance. Research and development decisions such as introduction of new products and services should be put in place to help increase market share that would stimulate financial performance.