Effect of Liquidity and Dividend Pay-out on Financial Performance of Deposit Taking Sacco’s in Kenya

Abstract

Capital structure is one of the fundamental aspects to the success of Deposit Taking Savings and Credit Cooperative Societies.The study aimed to investigate the effect of two capital structure determinants; liquidity and dividend payout, on financial performance as measured by Return on Assets of Deposit Taking Savings and Credit Cooperative Societies, in Kenya. The study was grounded on the Pecking order and  Free cash flow capital structure theories. The study utilized a mixed research design using primary and secondary data for the period 2013 to 2017. The population of the study was 174 Deposit Taking Savings and Credit Cooperative Societies. Stratified and purposive sampling technique was employed. A regression model was used to analyze the data. Results revealed that liquidity and dividend pay-out had a significant and positive effect on the financial performance of Deposit Taking Savings and Credit Cooperative Societies in Kenya. The study recommends having in place an Assets and Liabilities  Committee in each Deposit Taking Savings and Credit Cooperative Society that would help manage the assets and liabilities of the institution, ensuring adequate liquidity and cashflow management. Having in place a robust dividend policy is also critical.