Effect of Liquidity Management and Financial Leverage on Financial Distress in Deposit Taking Savings and Credit Cooperative Organizations in Kenya

Abstract

Financial distress is disruptive and costly, and especially relevant due to the impact on workers, shareholders, customers, suppliers, communities, and the financial entities. Extreme financial distress often leads to bankruptcy; part of the creative self-destruction phenomena that contribute to the dynamics of innovation and economic renewal. This study sought to establish the effect of liquidity management and financial leverage on financial distress of Deposit Taking Savings and Credit Cooperative Organizations in Kenya. A descriptive survey research design was used to establish the determinants of financial distress. The target population   included 68 deposit taking SACCOs. Secondary data was obtained from SACCOs records at SASRA. Data collected was analyzed STATA. The study established a p-value of the t-statistic for the estimated coefficient of liquidity is 0.030 which is less than 0.05indicating that liquidity management as a financial distress determinant had significant influence and distressing effect on probability of financial distress in savings and credit cooperative organizations in Kenya. Secondly, the study established a p-value of the t-statistic for the estimated coefficient of liquidity is 0.227 which is greater than 0.05indicating that financial leverage as a financial distress determinant had insignificant influence and distressing effect on probability of financial distress in savings and credit cooperative organizations in Kenya.