Determinants of Financial Performance of Agricultural Cooperative Societies in Baringo County, Kenya

Abstract

Cooperative societies strive to perform well in order to grow and increase their value. However, many of these organizations societies in Kenya are yet to achieve their potential due to management and financial difficulties. Furthermore, they have not been able to serve their members as expected and their contribution to economic growth has been limited. Therefore, it was necessary to carry out a study on the determinants of financial performance of agricultural cooperative societies in Baringo County. The study was guided by cost of finance, internal control practices, risk management and social capital as independent variables and financial performance as dependent variable. Theories that relates to the study such as; Cost of capital theory, Merton risk model, Reliability theory and Social capital theory were reviewed. Target population of the study was all accountants and managers of cooperative societies in Kenya. Accessible population for the study was 19 accountants and 19 managers of agricultural cooperative societies in Baringo County, Kenya. Descriptive survey design was employed, involving all 38 respondents with questionnaires as the data collection instruments. A preliminary study was undertaken from 5 accountants and 5 managers of 5 cooperative societies in Nakuru County to determine the reliability and validity of the questionnaires. Data was processed and analyzed by descriptive and inferential analysis with aid of statistical packages for social sciences (SPSS) version 23. Findings were presented by statistical tables. The findings of the study indicated that cost of finance, internal control practices, risk management and social capital influences financial performance of agricultural cooperative societies. It was found that the level of interest rates as elements of costs of finance affected performance. There was positive relationship between risk management and financial management. A strong degree of association was portrayed between cost of finance, internal control practices, risk management and social capital and financial performance. Therefore, it was concluded that proper risk management practices could enable the cooperatives to reduce chances of losses thus improving returns from their operations. The study recommended for establishment of effective organizational financial policies to govern the costs of finance.