Effect Of Firm Characteristics On Financial Performance Of Deposit Taking Microfinance Institutions In UASIN Gishu County, Kenya

Abstract

Deposit taking microfinance institutions (DTMFIs) promotes the growth of the economy by increasing credit inclusion amongst the economically active poor population to make strategic investments. Financial performance of DTMFIs is adduced to firm’s resources and objectives summarized as firm characteristics which include structure, market and capital-related variables. DTMFIs in Kenya are incarnate of these variables but their financial performance is poor. This study thus examines the effect of firm size on the financial performance of Deposit-Taking Microfinance Institutions (DTMFIs) in Uasin Gishu County, Kenya financial performance, measured by Return on Assets (ROA). The research is grounded in agency theory and adopted an explanatory research design, utilizing both primary and secondary data. A sample size of 74 respondents was derived based on the Taro Yamane (1973) formula, targeting 91 respondents from all 14 DTMFIs in the county, with 70 valid responses obtained. Data was collected through structured questionnaires and document analysis, and analyzed using descriptive and inferential statistics, including correlation and regression. The findings reveal that firm size explain 7% of the variation in financial performance (R² = 0.070, p = 0.000 β = 0.317, p = 0.027). Firm size have a statistically significant positive effects on financial performance of DTMFIs. Firms should leverage their size strategically by improving efficiency, technology adoption, and customer service, rather than just expanding scale. Smaller firms should note that they are not at a major disadvantage since size explains very little of profitability, they can compete effectively by focusing on agility, innovation, and niche markets. Future research could explore additional variables and contextual factors influencing DTMFIs' performance in diverse settings. Keywords: Firm Characteristics and Financial Performance