BACKGROUND OF THE STUDY
Savings and credit cooperative
societies exist for maximizing the shareholders wealth by covering expenses and
future investments through generation of adequate profits (Mulinge,
2016). To enhance profitability effectively, SACCOs have put a lot of emphasis
on sound financial management decisions making SACCOs to strive to enhance
their profitability through financial management decisions. SACCOs enable
people to easily access financial services, encourage the people to save, and
stimulate growth of businesses thus assisting in socio economic development of
members and communities at large. SACCOs also create and accumulate capital
from member’s savings which is then lend to members at reasonable interest
rates. Ofei (2001), indicated that Sacco’s apply
funds majorly by advancing affordable interest credit to members since members
guarantee each other while seeking credit. Financial management decisions are
decisions which are concerned with acquiring and utilizing capital funds with
an aim of meeting the financial needs as well as the overall objectives of a
business organization.
Financial management decisions determine strength and
weakness of a saving and credit cooperative society. It explores sources of
funds and how those funds are applied in investment ventures, capital
structure, working capital and dividend payout (Njenga,
2019). Financial management plans and also controls the financial resources of
a business enterprise. There are three functions of a manager: the financing
decision function, the investment decision function and dividend decision.
Financing decision is concerned with how the manager makes decisions concerning
the proportion of capital structure including equity and debt. The main
objective here is reducing cost of capital to be low and maximize firm’s value
by maintaining capital structure at optimal levels. In dividend decision, it is
under the discretion of the managers to decide the portion of profits that are
disbursed and what is to be retained. Investment decision deals with how the
assets will be selected and how will be invested by a firm. The investment
decision involving short term assets is called working capital management.
The profitability and performance of DT
SACCOs in Western Kenya has been declining from the year 2016 to 2020. The
profit after tax in 2017 was 13.68%, 2018 was 13.07%, 2019 was 12.98% and 2020
was 11.19%. Such a declining trend is worrying since primarily the aim of any
business is to increase profit (SASRA 2020). The lower profitability and
performance do not only affect SACCOs in Western Kenya but also the national
ones. There has been an increase in external loans borrowing by SACCOs from
3.67% in 2019 to 3.88% in 2020 from the other financial institutions to boost
their working capital which seemed inadequate. Over the years, SACCOs in Kenya
have been challenged by loan backlog with the percentage of nonperforming loans
increasing from 6.15% to 8.39% for the period between 2019 and 2020.
Pathak (2011), conducted a study that
investigated how Indian manufacturing firms were affected by the choice of the
capital structure. The relationship that exists between the financial leverage
and debt amount in the firm’s financial structure of the firm and performance
was investigated. Multiple regressions were employed. The study results showed
that some level of leverage negatively and significantly affect the functioning
of the company and firm performance. This study introduced working capital
management and dividend payout as important variables of financial management.
Also, deposit taking SACCOs were studied as opposed to manufacturing firms.
The influence of the capital structure and
profitability of Taiwan’s insurance sector was investigated by Chen et al
(2009) using factor and path analysis methods. The results of this study show a
weak link between the profitability of the company and its capital structure.
The findings also revealed that the profitability of insurance industry is
negatively influenced and very significantly affected by capital structure and
operating risk. Chen (2009) used path analysis methodology while this study
used correlational research design.
Njenga & Jagongo (2019), examined how financial management decisions
in Kiambu County affected the financial success of
non-DT SACCOs. They discovered that the capital structure, working capital
management, and investment to be predictors of SACCO financial performance and
that both management financial decisions and financial performance are affected
by gross domestic product. However, this study focused on deposit taking SACCOs
in Western Kenya which contrasts the non-DT SACCOs as studied by Njenga and Jagongo (2019).
Studies above shows that most studies failed
to show the proper mix of debt to equity of the SACCOs to maximize
profitability. Also, the capital structure effect on DT SACCOs’ profitability
in Western Kenya hasn’t been established. Chen et al (2009) used factor and
path analysis methodologies while this study used correlational research
design. Most of the reviewed studies were majorly on other financial institutions
but failed to carry out their studies on SACCOs and more specifically on DT
SACCOs in Western Kenya. Therefore, the effect of capital structure on
profitability of DT SACCOs in Western Kenya was investigated in this study.
Profitability refers to how the business uses
its resources in order to produce a return on an investment. Profitability can
also be defined as ability of a company aimed at generating revenues which
surpass expenses by using its resources. Profitability is essential for the stability
of financial systems. To the wider economy, it has implications for growth of
savings and investments. Returns on Assets (ROA) or Returns On
Equity (ROE) can be used to measure profitability. ROE compares income earned
by a business to total equity base of the business (Doehring,
2012).
The problem of this study was instigated from
the fact that SACCO financial management decisions are considered as important
for the shareholders since they have an effect which is significant on the
profitability of SACCOs. Studies conducted previously on impact of capital
structure on various financial institutions profitability have yielded
conflicting results. Some studies indicated a positive effect between financial
management decisions on profitability while others found out a negative effect
between financial management decisions and profitability. From the reviewed
literature, SACCOs have a challenge of ensuring quality financial management
especially on capital structure and this has lowered their profitability. The
financial performance of SACCOs in Kenya and more so in Western Kenya has been
generally on a declining trend with a decrease of 13% in 2014 with 6% and 10%
decline in performance in 2015 and 2016 respectively. The return on equity of
Western Kenya SACCOs was reported to decline from 17% to 14.32 % in the period
between 2015 and 2016. The profitability and performance of DT SACCOs in
Western Kenya has been declining from the year 2016 to 2020. The profit after
tax in 2017 was 13.68%, 2018 was 13.07%, 2019 was 12.98% and 2020 was 11.19%.
Such a declining trend is worrying since primarily the aim of any business is
to increase profit (SASRA 2020). The lower profitability and performance do not
only affect SACCOs in Western Kenya but also the national ones. In as much as there have been a number of
studies on financial decisions versus profitability, very few focused on capital
structure with respect to profitability of DT SACCOS in Western Kenya.
Therefore, the current study sought to address the empirical gaps by focusing
on financial management decisions, specifically capital structure and
profitability of DT SACCOs in Western Kenya.
The objective of this study was to determine
the effect of capital structure on the profitability of DT SACCOs in Western
Kenya.
The null hypothesis formulated from this
objective for purposes of statistical testing at 95% confidence level was:
H01: There is no significant effect of capital
structure on the profitability of DT SACCOs in Western Kenya.
LITERATURE
REVIEW
The study was anchored on the Pecking Order Theory.
This theory was brought forth by Donaldson (1961) and later refined by Myers
and Majluf (1984). It explains that firm’s management
has preference in financing its projects and investments from earnings retained,
followed by debts, then by external sources financing, all being aspects of
capital structure, the study’s independent variable. As per this theory,
profitable businesses tend to borrow less and internal financing sources and
prefers debt over equity when financing externally is required. Internally
generated cash flows are sometimes less if there is uncertainty surrounding
investment opportunities and profitability. The firm pays off debts when the
cash flows are more by investing in securities which are marketable. If the
cash flows are less, the firm tends to utilize the cash balance first before
selling the securities which are marketable. The type of debt a business
chooses can signal its intention to use external sources of finance. The SACCO
management is given powers during the annual general meeting to borrow
externally in order to meet the inadequacy of member’s deposits and demand for
loans. This theory was relevant to this research as it showed what managers of
SACCOs prefer during financing. It suggests that managers prefer finance from
internal sources as opposed to finance from the external sources. This theory
has been supported by study from Frank and Goyal
(2007) who indicated that companies intending to increase their profitability and
firm value should first utilize the internal sources of funding before
proceeding to external sources in support of pecking order theory. Pecking
order theory is the major theory that guided this study since it indicates the
model of financing employed by the SACCO management.
Koech (2013) defines capital structure as the
combination of sources of funding of a business. It includes debt of a company
which may be long or short term and equity of the firm either common or
preferred.
In order to determine the relationship
between the capital structure and the profitability of the quoted Sri lanka banks, Niresh
(2012) carried out a study and concluded that the decision on the capital
structure has an impact on the profitability of the company. Use of capital by
successfully selecting capital is important to the financial strategy of a
firm. Data here was collected and analyzed descriptively and using correlation
analysis. Results showed debt to equity and return on equity had a significant
but negative relationship. However, this study focused on banks in Sri Lanka
which contrasts with the current study which focused on deposit taking SACCOs
in Western Kenya.
Onaolapo & Kajola (2010) conducted a research study on the effects of
capital structure on the profitability of firms quoted on the Nigeria Stock
Exchange. They sampled 30 non-financial companies for the period 2001-2007. The
results showed that a negative relationship exists between capital structure
and level of profitability of the firm. The research study employed the ROA and
ROE of these firms. Although the study showed a significant relationship
between the variables, firms have different settings as compared to deposit
taking SACCOs and so cannot conclude findings on SACCOs.
Mwangi, Muathe,
& Kosimbei (2014) conducted a research study on
capital structure and its relationship with the financial performance of firms
listed at the Nairobi Securities Exchange. The study used data collected using
structured questionnaires. The study found out that there is a strong positive
correlation between leverage and return on equity, return on investment and
liquidity. In addition, Magara (2012) performed an investigation on capital
structure and its determinants at the Nairobi Securities Exchange. The study
investigated the major determinants of capital structure. It was found out that
from the period 2007-2011, there was a significant positive correlation between
the size of the firm, tangibility and rate of growth and leverage of the firm.
The study did not consider macro-economic factors such as interest rates and
inflation. Muchugia (2013) investigated the effects
of debt financing on the firm performance of commercial banks in Kenya. The
study used a quantitative research design and multiple regression analysis. Machugia (2013) used ROE as the dependent variable, whereas
long term debt, total debt, short term liabilities, and firm size as
independent variables. The research study concluded that short-term financing
has a positive correlation with the profitability of the firm. On the other
hand, the study also found out that long-term liabilities have a negative
correlation with the firm’s profitability. There is need for follow up
objective on the relationship between debt financing with the deposit taking
SACCOs and profitability of the deposit taking SACCOs.
According to Abor
(2005), regression analysis was used to determine the relationship between ROE
and capital structure in order to examine the effects of a common equity
structure on the profitability of quoted companies in Ghana. The results
revealed positive and significant relation existing between debt ratio to total
assets and return on equity. Results also indicated an association which was
negative between the return on equity and debt to total assets. However, the
study only focused on regression analysis and ignored descriptive statistics.
Moreover, the current study employed panel regression analysis which contrasted
with the analysis used by Abor (2005).
Abeywardhana (2015), explored the
influence of capital structure on profits of small and medium sized businesses
in the United Kingdom using two stages least squares which resulted in a
negative but strong relationship with profitability. It was apparent that the
size of the firm appeared to be an important factor which determined
profitability of SMEs. There was a significant negative effect on profitability
with the results of debt ratio to total assets ratio. Muhammad (2015) studied
impact that the capital structure and profitability has on automobile sector in
Pakistan by analyzing some ratios. The findings from the study showed that
capital structure negatively and significantly impacted on the profitability of
firms. However, the study employed least squares method as opposed to
correlational research design employed by this study.
A study has been conducted in India by Chavali and Rosario (2018) to assess the relationship
between capital structure and profitability of domestic finance companies, with
a positive correlation as regards debt to overall assets and indebtness to equity ratio. Therefore, increased financing
of debt increases the profitability since the cheapest source of financing is
debt. However, this is too direct to reach a conclusion as this study did not
indicate the methods used.
Debt to assets ratio and debt to equity ratio
was utilized to assess capital structure in a study by Gichuru
(2019) looking at the impact capital structure has on the government-based DT
SACCOs’ profitability in Kenya. Findings from the study showed that there
existed an insignificant and negative influence on profitability of SACCOs.
Testing of hypotheses was done using a descriptive research design. Gichuru (2019) employed descriptive research design which
contrasted with correlational research design employed by the current study,
thus presenting a methodological gap.
Muchiri et al. (2016)
investigated the Relationship between Financial Structure and Financial
Performance of Companies Listed at East Africa Securities Exchanges. The study
used explanatory research design with secondary cross-sectional time series
data for 61 companies. Using the Feasible Generalized Least Squares the study
found that, long term debt, short term debt, external equity and retained
earnings had insignificant positive association with ROE but insignificant
negative association with ROA. Capital structure was found to be positively
related to ROE and negatively related to ROA. GDP was similarly found to have a
significant moderating effect. However, this study considered only the
financing structure without regard to other factors including dividend
decisions, cash holding decisions and corporate investment decisions which form
the larger financial management decision making unit.
In the study on DT SACCOs, Karanja (2014) noted that a positive association existed
among debt to equity ratio and profitability. RoE was
the measure that was used to measure profitability and debt to equity ratio as
well as the return on assets was found to be weakly correlated. This study was
conducted on DT SACCOs in Kenya as opposed to DT SACCOs in Western Kenya as in
the current study thus presenting a geographical gap.
Kembo (2013) in his study
postulated that default on loans was a key factor which leads to low
performance in SACCOs. He found out that the risk defaulting loans was
influenced by both borrowers and the management decisions. However, the study
failed to explain the extent to which loan defaults impacted on the SACCOs
financial performance.
Mwangi, Muathe
and Kosimbei (2014) sought to determine the
relationship between capital structure and the performance of non-financial
companies listed in the Nairobi Securities Exchange (NSE). The study used a
census of 42 non-financial companies listed in the Nairobi securities exchange
and applied explanatory non-experimental research design. The results indicated
that debt had a statistically significant negative relationship with
performance as determined by return on assets and return on equity.
Methodologically, the study utilized the traditional measures of performance;
ROE and ROI. However, such findings cannot be generalized to deposit taking
SACCOs since the structure of the SACCOs is different from that of companies.
Moreover, the study employed explanatory non-experimental research design while
the current study employed correlational research design.
By using debt and equity ratios to measure
capital structure, Odhiambo & Ng’ang’a
(2020) did a research analyzing the effect on financial performance of DT
SACCOs in Mombasa County by means of which it has found that there is a strong
positive relationship between an institution’s capital structure and its
financial performance. Study by Ng’ang’a (2020) was
conducted on DT SACCOs in Mombasa county while the current study was conducted
on DT SACCOs in Western Kenya.
Studies by Kembo
(2013), Karanja (2014), Muchiri
(2016), Muchugia (2013), Magara (2012), Mwangi, Muatrhe & Kosimbei (2014), Odhiambo & Ng’ang’a (2020), Chavali and
Rosario (2018) demonstrated a statistically significant and positive
association between capital structure and profitability of a variety of
selected companies. On the contrary, studies by Abeywardhana
(2015), Abor (2005), Niresh
(2012), Gichuru (2019), Onaolapo
& Kajola (2010), Muhammad
(2015) indicated a statistically negative association.
From the above reviewed studies, there
existed mixed results since some studies indicated a positive effect while
others revealed that there existed a negative effect between profitability and
capital structure. However, these studies failed to indicate the debt equity
mix ideal for the SACCOs to get to optimal profitability. Most of the empirical
studies also considered the effect of capital structure on profitability or
financial performance but failed to consider other variables of financial
management decisions as indicated in the current study. Also, the studies
failed to reveal the level at which capital structure affected the
profitability. Studies reviewed focused on other financial institutions but not
in the deposit taking SACCOs in Western Kenya. The research design used in this
study was correlational research design while studies reviewed used other
designs such as descriptive and experimental research designs. Therefore, this
study was seeking to investigate how capital structure affects the
profitability of the deposit taking SACCOs in Western Kenya.
MATERIALS AND METHODS
Research design,
according to Kerlinger (1973), is an arrangement in
which conditions are used to collect and analyse data in a way that is
consistent with the aim of combining them. This study made use of a
correlational research design which provides for description, correlation and
regression. Correlation analysis is aimed at determining the amount of
correlation that exists between two or more variables (Kothari, 2004).
Correlation research is aimed at investigating the existence and the extent of
relationship between two or more quantitative variables. In this study the research design was able to
show that there is statistically an association, e.g. capital structure and
profitability, with both of these variables in question.
Western Kenya was the area where
the study was conducted which covers various counties such as Kakamega,
Vihiga, Busia, Bungoma, Kisumu, Siaya, Migori, Homabay, Kisii and Nyamira. The study area
covers an area of approximately 19877.5 km2. The researcher opted
for this area because it had a relatively high number of deposits taking SACCOs
spread evenly across the counties with headquarters set there in (SASRA
supervision report, 2020). In comparison
to Rift valley region and coast region among other regions in Kenya, Western
Kenya had a comparatively higher number of DT SACCOs as per the annual
supervision report, 2020.
Cooper & Schindler, 2001, defines
population in terms of a complete collection of elements to be inferred from.
Study population was18
licensed deposit taking SACCOs in western Kenya. All these SACCOs have their
headquarters within the region. The sample frame for the study was all the deposit taking
SACCOs operating in Western Kenya over the period 2017 – 2020. Sampling
techniques provide a range of methods that facilitate to reduce the amount of
data needed to be collected considering only data from a sub group rather than
all possible cases or elements. Since the study population was small, the researcher used
census sampling technique by considering all the 18 Deposit taking SACCOs as
the sample size for the four-year period between 2017 and 2020 yielding 72 data
points.
Before compiling the data, a document review
guide has been used by the investigator in order to obtain information required
from audited financial statements of various SACCOs under investigation.
The reliability shall be defined in accordance
with Kothari (2004) as being the consistency of a measurement tool when it is
used to an equal number of respondents. The study has used general accounting
standards to collect secondary data in the audit financial statements drawn up
and published. Since the Financial Statements are drawn up in accordance with
global accounting standards and guidelines, this data is considered to be
reliable.
Secondary data has been used in the study. Data
for the period between 2017 and 2020 is taken from the yearly SACCO Research
Report as well as its Financial Statistics. In order to obtain the data needed
from the financial statements so that analyses can be carried out, a document
review guide has been employed by the researcher.
The study
employed PPMCC to analyse the direction and strength of the association between
capital structure of the selected deposit taking
SACCOs on their profitability, so as to obtain statistical evidence that
effectively addressed the null hypothesis of this study. Because corelation analysis is based on assumptions of linearity,
heterogeneity of variances and normality be met, these assumptions were
therefore tested, and the results showed that the data passed all the said
assumptions.
RESULTS AND
DISCUSSION
Methods
of making data meaningful so that it can be easily interpreted by a wide range
of users is referred to as descriptive statistics. It analyzes data in terms
central tendency measures like median, mode and mean; dispersion measures such
as variance and standard deviation; and distribution measures such as kurtosis
and skewness. Profitability and capital
structure were all different factors studied with descriptive
analysis.
Table 1:
Profitability descriptive statistics.
|
|
Net
income (Billions)
|
ROE Ratio
|
|
Mean
|
0.181
|
0.209
|
|
Standard Error
|
0.036
|
0.013
|
|
Median
|
0.049
|
0.177
|
|
Mode
|
0.014
|
0.140
|
|
Standard Deviation
|
0.303
|
0.112
|
|
Sample Variance
|
0.092
|
0.013
|
|
Kurtosis
|
3.521
|
0.040
|
|
Skewness
|
2.175
|
0.938
|
|
Range
|
1.170
|
0.430
|
|
Minimum
|
0.006
|
0.037
|
|
Maximum
|
1.176
|
0.467
|
|
Source: Researcher, 2022.
|
From
Table 1 above, average net income from 2017 to 2020 for DT SACCOs in Western
Kenya was estimated at 0.181 billion with return on equity ratio estimated at
0.209. The maximum net income recorded in the 4-year period by the DT SACCOs
from Western Kenya was 1.176 billion with the minimum net income recorded at
0.006 billion.
Based
on the results obtained, the variations experienced in the net income from 2017
to 2020 for the DT SACCOs in Western Kenya was estimated at 0.092 billion with
a standard error of 0.036 billion and skewness
coefficient of 2.175. The skewness coefficient
implied that the variation experienced by the net income for the year 2017 to
2020 was not normally distributed across the 4-year period. Also, the skewness
coefficient of ROE for the 4-year period was 0.938
implying a steady non-uniform distribution from the year 2017 to 2020. ROE
ratios non-uniform distribution across the 4-year period implies an
un-efficient manner through which the DT SACCOs from Western Kenya were
consistently generating profits for the period of interest in the study. A
0.303 standard deviation for net income and ROE of 0.112 indicated a low
variation in changes in net income and ROE respectively. ROE skewness and kurtosis was 0.938<1 and 0.040<3
respectively which implied a skewed distribution which was fairly positive. On
average, the return on equity was estimated at 20.9%. According to (Heikal, Khaddafi
& Ummah, 2014),
anything more than 5% ROE is considered good while anything more than 20% ROE
is considered great; hence we can conclude that the 20.9% ROE is a great
measure of DT SACCOs’ profitability in Western Kenya.
Table 2:
Capital structure
descriptive statistics
|
|
Total Assets (Billion)
|
Shareholder's equity (Billion)
|
Equity ratio
|
|
Mean
|
1.654
|
0.953
|
0.617
|
|
Standard Error
|
0.328
|
0.209
|
0.018
|
|
Median
|
0.421
|
0.220
|
0.636
|
|
Mode
|
0.220
|
0.190
|
0.714
|
|
Standard Deviation
|
2.780
|
1.776
|
0.152
|
|
Sample Variance
|
7.727
|
3.153
|
0.023
|
|
Kurtosis
|
3.751
|
5.311
|
6.613
|
|
Skewness
|
2.228
|
2.548
|
-1.016
|
|
Range
|
10.436
|
7.595
|
1.094
|
|
Minimum
|
0.044
|
0.025
|
0.024
|
|
Maximum
|
10.480
|
7.620
|
1.118
|
|
Source: Researcher, 2022 (SPSS).
|
From
Table 2 above, an average estimate of 61.7% equity ratio was estimated implying
that the DT SACCOs in Western Kenya performed well in terms of being exposed to
risks, hence less risk. A standard
deviation of 2.78, 1.776 and 0.152 was estimated for total assets,
shareholders’ equity and equity ratio respectively which implied quite less
variability in the equity ratio for the 4-year period among the SACCOs in
Western Kenya. This is in line with Odhiambo & Ng’ang’a (2020) who contends that SACCOs utilize more
equity than debt in their financial structure. Equity ratio had a kurtosis
coefficient of 6.613>3 indicating a leptokurtic distribution.
From 2017 to 2020, the 18 DT SACCOs from
Western Kenya recorded an average minimum of 2.4% equity ratio which implied
that they had very extensive risks with maximum equity ratio of 111.8% implying
very minimal risks.
A study in Kenya has been conducted by Gichuru (2019) to investigate the impact of capital
structure on government owned DT SACCO profitability, with results showing that
there is a negative and negligible causal relationship between capital
structure and SACCO profitability. For assessing the capital structure and for
measuring profitability by ROA, debt to equity ratio and debt to assets ratio
were applied.
The researcher
adopted Pearson correlation in the research to test the null hypothesis. The PPMCC was intended to assist in establishing
a statistical correlation between the financial management decision and
profitability, while analyzing degrees of association between these two factors by using PPMCC.
Table
3: Corelation between Capital structure and Profitability (ROE)
|
VARIABLE
|
Capital Structure
|
ROE
|
|
|
|
Capital Structure
|
1
|
0.790*
|
|
|
ROE
|
0.790*
|
1
|
|
* p = 0.041, α = 0.05
According
to the findings, in western Kenya there is a very strong relationship among
Financial Management Decision options and Profitability of DT SACCOs. A strong
positive but significant linear association was revealed between capital
structure as a financial management option with profitability (ROE) with a
correlation coefficient of 0.790 with a p-value of 0.041 < 0.05. This indicated that the results were
significant if capital structure increases it would have a positive effect on
the profitability of DT SACCOs. The significance of
this variable is based on the fact that p value of the corelation was less than 0.05, which led to rejection of the null hypothesis. This meant
that there was sufficient evidence in support of the claim that DT SACCOs' profitability is significantly affected by their capital
structure. Consequently, the results of the study showed that capital structure
has a significant and positive impact on DT SACCO profitability in Western Kenya. These results are in consonance
with Gill, Biger & Mathur
(2011) who noted that capital structure had always had a positive relationship on profitability in the manufacturing
industry. The results are also in agreement with the studies by Karanja (2014) and Kembo (2013)
who found out that capital structure and profitability were positively
correlated. The results are also in support of the studies by Muhammad (2015), Odhiambo & Ng’ang’a (2020)
and Chavali & Rosario (2018) who found out that
capital structure and profitability of firms had a statistically significant
relationship. On the contrary, the study results contradict studies by Abeywardhana (2015), Abor (2005)
and Niresh (2012) that showed that there existed a
negative relationship between capital structure and profitability as measured
by the return on equity.
CONCLUSION
The study indicated
that the profitability of DT SACCOs in western Kenya is affected significantly
and positively by their capital structure. Consequently, the null hypothesis
that there was no significant effect of the capital structure on the profitability
of DT SACCOs in Western Kenya was rejected and a finding was made that there
was sufficient evidence against the null hypothesis. The conclusion of this
study was in consonance with the Modigliani-Miller Theory which stipulates the cruciality of market structure in enhancing investment by
investors in SACCOs. A company integrating the
capital structure into its systems tends to have a better hand in the market
due to better utilization, hence influencing profitability.
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