Related party transactions and financial distress of Savings and Credit Cooperative Organizations (SACCOs) in Kenya
DOI:
https://doi.org/10.20525/ijrbs.v10i1.1006Keywords:
Financial Distress, Related Party Transactions.Abstract
The widespread failure of DT SACCOs in Kenya is likely to lead to a loss of confidence among the current and potential members of the DT SACCOs in Kenya and eventually threatens to kill the sector. The study examined the effect of related party transactions on financial distress in DT-SACCOs in Kenya; the study adopted the following theories as to the basis of analyzing the collected data; wrecker’s financial distress theories and Agency theory. The target population was 176 Deposit-Taking SACCOs. Secondary data was obtained from SACCOs records as published by SASRA. The study used a systematic sampling technique based on the sampling formula by Taro Yamane (1967) to obtain the appropriate sample size of 68 DT SACCOs. Data were analyzed using STATA computer software. Data collection covered seven (7) year period from 2008 -2014, this period of 7 years was selected for the study because SASRA has enacted in 2010 therefore the justification for the choice of the study period, that is 3 years before and 4 years after SASRA enactment. The study established that related party transactions had a significant effect on financial distress in DT SACCOs in Kenya. The implications of the findings are that if the DT-SACCOs do not manage related party transactions then they will continue experiencing financial distress. The government through SASRA therefore should enact strict regulations in directors borrowing from SACCOs. The study has expounded on the body of knowledge on measures of financial distress in finance by introducing new relationships established. In terms of the contribution of the current study to innovation, the study used panel data analysis while other studies used OLS.
Downloads
References
Alhadab, M., Abdullatif, M. & Mansour, I. (2020). Related party transactions and earnings management in Jordan: the role of ownership structure, Journal of Financial Reporting and Accounting, 18(3), 505-531.
Barrales, R. J. (2012), A Best Practices Approach to Risk Management, TMA Journal, Jan/Feb, 30-34.
Bhetuwal, K. R. 2007. Financial Liberalization and Financial Development in Nepal. NRB Economic Review. 19, 23-41.
Borg, R. W., Borg J. P.& Gall, M. D. (2005). Applying educational research: A practicalguide.5 th Edition. Boston: New York: Pearson.
Campbel, Y., Hilscher, J., &Szilagyi, J. (2005). A ‘Wreckers Theory’ of Financial Distress: Discussing “In Search of Distress Risk”. Berlin: Seventh Bundesbank Spring Conference.
Chen, Y., Chen, C.H. & Chen, W. (2009). The impact of related party transactions on the operational performance of listed companies in China, Journal of Economic Policy Reform, 12(4), 285-97.
Cheung, Y.L., Rau, P. & Stouraitis, A. (2016). Tunnelling, propping, and expropriation: evidence from connected party transactions in Hong Kong, Journal of Financial Economics, 82(2), 343-86.
Chien, C. Y., & Hsu, J. (2010). The role of corporate governance in related party transactions. Available at SSRN 1539808.
Durham, W., Sykes, C., Piper, S. & Stroke C. (2015). Conceptual frameworks and terminology in doctoral nursing research, Nurse Res, 23(2):8-12. https:/doi.org/10.7748/nr.23.2.8.s3.
Ge, W., Drury, D.H., Fortin, S., Liu, F. and Tsang D. (2010). Value relevance of disclosed related party transactions, Advances in Accounting, 26(1), 134-141.
Gordon, E.A. & Henry, E. (2005). Related party transactions and earnings management.
Habib, A., Muhammadi, A.H. & Jiang, H. (2017). Political Connections and Related Party Transactions: Evidence from Indonesia, The International Journal of Accounting, 52(1), 45-63.
Huang, D. T., & Liu, Z. C. (2010). A study of the relationship between related party transactions and firm value in high technology firms in Taiwan and China. African Journal of Business Management, 4(9), 1924.
Jian, M. & Wong, T.J. (2010). Propping through related party transactions, Review of Accounting Studies, vol. 15, no. 1, pp. 70-105.
Kiaritha, H.W. (2015). Determinants of financial performance of Saccos in the banking sector in Kenya, Unpublished PhD Thesis, JKUAT, Kenya, 2015.
Kioko, B. (2012) Impact of regulation on the financial performance of SACCOs in Kenya. A case study.Un published thesis University of Nairobi.
Maina, T. (2007). Corporate Finance. Nairobi: Regional Institute of Cooperatives development and Management.
Mohammed, L. and Abibakar, N. (2019). Related party transactions, off balance sheet items and earnings quality of listed deposit money banks in Nigeria, Kaduna Journal of Management Sciences, 7(1).
Ngaira L (2011). The Impact of SACCO Regulatory Authority Guidelines on SACCO Operations in Kenya-The Case of Nairobi Deposit Taking SACCOs. Unpublished MBA Project, University of Nairobi.
Nyoro, J.K. & Ngugi, I.K. (2007). A qualitative analysis of success and failure factors of agricultural cooperatives in Central Kenya, Decentralization and the social economics of development, CABI.
Peng, W.Q., Wei, K.C.J. and Yang, Z. (2011). Tunnelling and propping: evidence from connected transactions in China, Journal of Corporate Finance, 17(2) 306-325.
SASRA. (2012). Financial Report. Financial Report . Available from http://www. SASRA. go.ke / Retrieved 297/04/2014.
Tipuric, D. (2008). Korporativnoupravljanje,Sinergija, 953-6895-07-02, Zagreb
Unal, V., Glucusoy, H, &Franguesa, R. (2009). A comparative study of success and failure of fishery cooperatives in the Aegean, Turkey, Journal of Applied Ichthyology 25(4),394–400.
Wan, Y. & Wong, L. (2015). Ownership, related party transactions and performance in China, Accounting Research Journal, 28(2). 143-59.
Wanyama, F. (2009). Surviving liberalization: The co-operative movement in Kenya. Coop AFRICA Working Paper No.10. Dar es Salaam, Tanzania: International Labour Organization.
Yamane, Taro. (1967). Statistics: An Introductory Analysis, 2nd Ed., New York: Harper and Row
Yeh, Y.H., Shu, P.G. & Su, Y.H. (2012). Related-party transactions and corporate governance: The evidence from the Taiwan stock market, Pacific-Basin Finance Journal, 20(5), 755-76.
Zeuli, K. &Cropp, R. (2013). Principles and practice of Co-opratives in 21stcentury.Wisconsin Publishing R-08-2004.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2021 Susan Jepkorir Mursoi
This work is licensed under a Creative Commons Attribution 4.0 International License.
For all articles published in IJRBS, copyright is retained by the authors. Articles are licensed under an open access Creative Commons CC BY 4.0 license, meaning that anyone may download and read the paper for free. In addition, the article may be reused and quoted provided that the original published version is cited. These conditions allow for maximum use and exposure of the work, while ensuring that the authors receive proper credit.
