Moderating Effect of Firm Size and Financial Performance of Deposit Taking Savings and Credit Cooperative Societies in Kenya

Abstract

The DT-SACCOs are very crucial in financial intermediation, and they encourage savings, organization of credit facilities and creation of wealth both in the developed and emerging economies. There have been debates as far as the conceptual relationship between financial distress, firm size, and financial performance. This paper examined how financial distress affects financial performance of Kenyan domiciled DT-SACCOs with the moderator role of firm size being incorporated. The objective of the paper was to identify the moderating effect of the firm size on the financial distress-financial performance relationship. The theoretical model was resource-based theory. The study philosophy inclined towards positivism, and explanatory research design informed the research. Secondary panel data were used to carry out the study by taking audited financial statement and census of all 175 licensed DT-SACCOs in Kenya between 2016 and 2023. Analysis of data included descriptive statistics, correlation analysis, and pooled and panel regression analysis with hierarchical analysis and mediation analysis. Diagnostic tests, normality, multicollinearity, heteroscedasticity, autocorrelation, stationarity, model specification, tests were performed to ensure that the data and model assumptions were appropriate. The study finding indicated firm size had a significant moderating effect of the relationship between financial distress and financial performance of DT savings and credit cooperatives societies in Kenya. Recommendation was that SASRA should be well guided by the multivariate model the current study has developed where size of the firm has been utilized as a conditional variable other than a pure predictor and develop Key Performance Indicators suitable for both the large and small DT-SACCOs in Kenya. The moderating effect of firm size provides an empirical insight to the owners of the DT-SACCOs to advocate for engaging qualified management team whereby management efficiency is assured to guarantee increase in financial performance of the DT-SACCOs. Keywords: Financial Distress, Firm Size, Financial Performance, Deposit-Taking SACCOs, Moderating Effect