Thesis Details

Abstract

Undeniably, agency cost has emerged as one of the leading determinants of financial performance of a firm. The purpose of this dissertation was to conduct an assessment into the relationship between agency costs and financial performance of Micro-Finance Institutions (MFIs) in Machakos County, Kenya. Specifically, the study sought to investigate the influence of monitoring costs, bonding costs and residual loss on financial performance of microfinance institutions in Machakos County in Kenya.

In order to achieve these objectives, a descriptive design was used. The target population of the study comprised the three MFIs in the Machakos County. To obtain primary data on agency costs, 5-point Likert scale structured questionnaires were administered to stakeholders, finance directors and chief executive officers who were selected through census technique. Secondary data was extracted from the annual reports of the MFIs to determine financial performance.

Descriptive statistics such as the mean and standard deviations while inferential statistics included correlation and regression procedures were used to analyze the data. The study found out a significant relationship between monitoring costs and financial performance. Also established was that bonding costs were found to significantly influence financial performance. The study equally established a strong positive correlation between the residual loss and financial performance.

The study recommends that an in-depth investigation should be done on competitive challenges facing the microfinance firms in Machakos county and Kenya in general. Kenya has come of age against the backdrop increased development of mobile phone-based lending platforms which have seriously affected the financial performance of micro finance institutions. The study also recommends that the influence of moderating and intervening factors such as age and size of the firm should be examined.