Impact of regulatory reforms on compliance with mandatory disclosures by savings and credit co-operatives in Kenya
| Date | 14 May 2018 |
| Pages | 246-270 |
| DOI | https://doi.org/10.1108/JFRC-04-2016-0036 |
| Published date | 14 May 2018 |
| Author | David Mutua Mathuva,H. Gin Chong |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation |
Impact of regulatory reforms on
compliance with mandatory
disclosures by savings and credit
co-operatives in Kenya
David Mutua Mathuva
Strathmore Business School, Strathmore University, Nairobi, Kenya, and
H. Gin Chong
Prairie View A&M University (PVAMU), Prairie View, Texas, USA
Abstract
Purpose –This paper aims to utilize institutional theory to examine the impact of the 2008-2010
regulatory reforms on compliance with mandatory disclosures by savings and credit co-operatives
(SACCOs) in Kenya.
Design/methodology/approach –Two-stage least squares panel regression approach is utilized to
analyse data covering 1,272 firm-year observations for 212 SACCOs over a six-year period, 2008-2013. An
analysis of the pre- and post-regulation impacts on compliance with mandatory disclosurerequirements is
also performed.
Findings –The results,which are in support of the institutional theory, reveal that licensedSACCOs engage
in higher compliance with mandatory disclosures, and this improves from the pre- to the post-regulation
period. The resultsshow that SACCOs under inquiry engage in lowercompliance with mandatory disclosure
requirements, especially in the post-regulation period. The findings also reveal a significant and positive
association between SACCO size, co-operative governance and compliance with mandatory disclosure
requirements.
Research limitations/implications –The study focuses on transition-level SACCOs in a single
country. An extension into otherjurisdictions with nascent, transitional and mature SACCOs wouldprovide
greater insights into the impact of disclosureregulation. Further, the study uses a self-constructed disclosure
checklistwhich is subject to coding errors and biases.
Practical implications –The findings highlight the need for SACCO regulators and accounting
professionalbody to devise incentives to improve the level of compliancewith required disclosures.
The authors would like to acknowledge comments from the anonymous reviewers, participants in the
Paper Development Workshop organized by the International Association for Accounting Education
and Research (IAAER) during the 12th IAAER World Congress of Accounting Educators and
Researchers, and participants in the 6th and 7th African Accounting and Finance Association
(AAFA) Conference. The corresponding author wishes to thank the Association of African
Universities (AAU) for providing research funds for this study. They thank the officers at SASRA
and the Commissioner of Co-operatives in Kenya for providing data for this study. The research
assistance provided by Emmanuel Musyoka and Jacktone Owande is much appreciated. The authors
would also like to note that the initial development of this research idea was positively influenced by
the “pitching template”created by Prof Robert Faff(https://papers.ssrn.com/sol3/papers.cfm?
abstract_id=2462059). Any errors in this paper are the sole responsibility of the authors, and not any
of the individuals mentioned in this acknowledgement.
JFRC
26,2
246
Journalof Financial Regulation
andCompliance
Vol.26 No. 2, 2018
pp. 246-270
© Emerald Publishing Limited
1358-1988
DOI 10.1108/JFRC-04-2016-0036
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1358-1988.htm
Originality/value –The study contributes to the dearthof evidence on the efficacy of the introduction of
mandatory disclosure requirements in a developing country where compliance is problematic because of
difficultieswith enforcement.
Keywords Kenya, Regulation, Compliance, Mandatory disclosure, Savings and credit co-operatives
Paper type Research paper
1. Introduction
In this study, we examinethe influence of regulatory reformson compliance with mandatory
disclosure requirements by savings and credit co-operatives (SACCOs) in Kenya[1]. A
co-operative is viewed as an autonomous association of individualswhose aim is to achieve
economic, social and cultural needs and aspirations through a mutually owned and
democratically controlled enterprise (ICA, 2015). SACCOs are a model of such co-operatives
whose primaryactivity is the provision of savings and credit facilities to members(McKillop
and Wilson, 2011;ICA, 2015;Mathuva et al.,2015). Traditionally, SACCOs in Kenya have
offered back-office service activities (BOSA) to members drawn from a specific organization,
region or social grouping (Hyndman et al.,2004;McKillop and Wilson, 2011). Over time, the
SACCO sector has undergone various changes because of regulatory reforms, technological
changes and deregulation (McKillop and Wilson, 2011;Mathuva,2015). These changes have
had an impact on SACCOs in terms of expanded business model characterized by
sophisticated“bank-like”front-officeservice activities(FOSA)[2].
The regulatory reforms of 2008-2010 in the SACCO sector in Kenya require SACCOs to
comply with certain minimum mandatory disclosure requirements. This presents some
“pressure”on the SACCOs to improve their level of disclosure as they attempt to meet the
regulatory demands for increased information. In this paper, we argue that, from an
institutional perspective,the pressure is as a result of coercive forces impinging on SACCOs
to conform to certain disclosure thresholds imposed by the regulation. The regulatory
efforts are intended to promote public confidence in the mutual organizations by ensuring
transparency, security and safetyof members’funds and financial soundness in the SACCO
sector (Mathuva, 2016). The continued evolution of the regulatory reforms and regulatory
actions has had a significant impact on Kenya’s SACCO sector in terms of governance as
well as the level of trust and confidence by the variousstakeholders (Mathuva, 2015).
The regulatory requirements contained in the Kenyan SACCO Act 2008 and the
subsequent regulations of 2010 prescribe the adoption of International Financial Reporting
Standards (IFRSs)by SACCOs in Kenya. The adoption of high-qualitystandards such as the
IFRSs is essential in mobilizingdomestic savings and for attracting investors(Al-Akra et al.,
2010). Adopting internationally acceptable and comparable accounting standards in fast
growing mutual organizations such as SACCOs in an emerging economy helps improve
confidence and can safeguard public funds (Al-Akra et al.,2010;Al-Akra and Hutchinson,
2013). Kenya formally adopted the IFRS in 1999 (UNCTAD, 2006;Bova and Pereira, 2012).
Since then, both publicly traded and privately held companies in Kenya are required to
comply with IFRS in preparing their financial statements. The professional accountancy
organization in Kenyaalso released financial reporting guidelines for SACCO in 2010 to help
SACCOs in determining what to disclose and howto disclose in the annual report (ICPAK,
2010). We anticipate that this may also present coercive institutional influences on
disclosure behaviouras SACCOs strive to adhere to the disclosure guidelines.
Central governments, regulators and professional bodies play an important role to
enact disclosure rules and regulations. This is achieved through the design,
implementation and improvement of organizations’accounting and disclosure policies.
Impact of
regulatory
reforms
247
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