Effect of group composition and formalization on the financial performance of investment groups in Nakuru.

Abstract

Investment groups provide a system of pooling together capital, lowering risks per individual and availing cheap capital for individual and Mses, Growth. The objective of the study was to assess the effect of the group composition and formalization on the financial performance of investment groups in Nauru Town. Descriptive survey design was used to gather information that could be used for statistical inference on the target population through data analysis. Stratified and simple random sampling technique was used to select a sample of 130 investment groups. Since the information is sensitive as it contains financial matters, ethical issues were considered. A personally administered questionnaire was used to collect data necessary to answer research questions. Data was analyzed using both descriptive and inferential statistics. In order to determine the association between the variables, correlation analysis was used. Multiple regression models were used with the help of SPSS statistical tool to assess the effect of group composition and formalization on the financial performance of investment groups. The results show that group composition and group formalization positively and significantly influence financial performance of investment groups in Nakuru town. The study concludes that group composition components which are experience, gender, occupation, business training and ethnic diversity have significant positive effect on group financial performance. The group formalization components that have significant positive effect on group financial performance were organization form, financial management and accounting and auditing. The government should come up with policies that encourage gender mainstreaming in investment groups and registration of investment groups with members from different occupational backgrounds. Kenya Association of Investment Groups should facilitate training programs and forums to educate the members on business skills and proper financial management practices. Policies to encourage formalization of investment groups and as well that demand that investment groups prepare and file audited accounts are needed. The findings can further be verified by conducting a similar study on investment groups in specific economic sector investments. Research on the effect of technology adoption by investment groups can also be done.