Liquidity Management as a Determinant of Financial Distress in 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. The study aimed at determining the financial distress using financial management in Savings and Credit Cooperative Organizations in Kenya. A Seven-year panel data of thirty SACCOs spanning 2008 to 2014 was fitted on fixed effect model to assess the strength of liquidity management as a determinant of financial distress among deposit taking SACCO’s in Kenya. From the findings it was evident that liquidity ratio as a proxy of liquidity management was found to negatively predict financial distress. The study recommends that an efficient liquidity management framework that promotes easier access and cost effective money market system be considered.