Effects of management structure, ownership structure and organizational governance on financial performance of unit trusts in Kenya

Abstract

In the Kenyan, unit trusts have played a pivotal role in the growth and development of the economy. Unit trusts have grown in acceptance and popularity as evidenced by the growth in the number of approved unit trust funds from virtually zero in 2001 to 11 in 2008. However, performance of unit trusts has elicited a lot of questions, there has been an average growth of Sh1.9 billion annually to Sh17.6 billion in a span of nine years much slower than other financial sector investments such as pension funds that have more than doubled within a span of five years. The purpose of this study thus was to examine some of the factors affecting financial performance of unit trusts in Kenya. The specific objectives were to establish the effect of management structure on financial performance; to establish the effect of ownership structure on financial performance and to find out the effect of organizational governance on financial performance the Unit Trusts in Kenya. The study employed correlational research design involving 30 Portfolio managers and 9 Fund Managers from 11 unit trusts. The study used structured questionnaires in the collection of primary data whereas financial performance data was gathered from secondary sources. Data collected was analyzed using descriptive statistics including frequencies, percentages, mean and standard deviation. Further Pearson Product Moment Correlation (r) was used to test the hypothesis. The key study findings were as follows: the constitution of management structure compliant to the requirements of the capital markets authority played a significant role in enhancing the financial performance of unit trusts. A significant proportion of the unit trusts were non-bank owned with participatory approach as the most popular management style. Diversity of ownership in the hands of different holders did not have a significant effect on the financial performance of unit trusts. Governance was fairly practiced in unit trusts and it significantly affected the financial performance of unit trusts. This study recommends the need for capital market authority to enhance monitoring of the activities of unit trusts and regular evaluations to establish their level of compliance with the requirements