The Intervening Effect of Capital Adequacy on the Relationship between IFRS 9 Adoption and Financial Performance of Deposit-Taking SACCOs in Kenya
DOI:
https://doi.org/10.47604/ijfa.4004Keywords:
IFRS 9 Adoption, Capital Adequacy, Financial Performance, Mediation Analysis, Deposit-Taking SACCOsAbstract
Purpose: This study examined the intervening effect of capital adequacy on the relationship between International Financial Reporting Standard 9 (IFRS 9) adoption and the financial performance of deposit-taking Savings and Credit Cooperative Societies (DT-SACCOs) in Kenya.
Methodology: The study adopted a quantitative longitudinal ex-post facto research design and a census of regulated DT-SACCOs, yielding an unbalanced panel of 1,543 SACCO-year observations from 177 DT-SACCOs over 2016–2024. Secondary data were extracted from audited financial statements and Sacco Societies Regulatory Authority (SASRA) supervisory records. Financial performance was measured using return on assets (ROA), capital adequacy using institutional capital to total assets (ICA), and IFRS 9 adoption using an implementation-period indicator coded 0 for 2016–2018 and 1 for 2019–2024. Fixed-effects panel regressions with SACCO-clustered robust standard errors were estimated, and the indirect effect was tested using the Sobel test and a 2,000-replication SACCO-cluster bootstrap.
Findings: The IFRS 9 implementation-period indicator did not significantly predict ICA (β = −0.0022, p = .623), while ICA had a positive but statistically insignificant relationship with ROA (β = 0.0375, p = .193). The estimated indirect effect (−0.0000828) was insignificant under both the Sobel test (p = .645) and the clustered bootstrap (p = .723), with both bootstrap confidence intervals including zero. The null hypothesis was therefore not rejected. A supplementary threshold analysis indicated that the ICA–ROA relationship may be nonlinear around the 8% institutional-capital benchmark.
Unique Contribution to Theory, Practice and Policy: The study refines Capital Adequacy Theory by distinguishing the prudential, loss-absorbing role of capital from its role as a statistical transmission mechanism for IFRS 9 effects, and extending IFRS 9 evidence to cooperative financial institutions. SACCO managers should integrate capital planning with expected credit loss estimation, credit-risk assessment and asset-quality management rather than assume that stronger capital automatically converts IFRS 9 provisioning into improved profitability. SASRA and policymakers should retain capital adequacy as a prudential safeguard while evaluating capital ratios alongside impairment practices, asset quality, external borrowing and institutional capacity to apply forward-looking credit-loss models.
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Copyright (c) 2026 Lucy Ajwang’ Otieno, Dr. Jared Ariemba Mogaka, Prof. Evans Vidija Sagwa, Sandra Beldine Otieno
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