Determinants of Technical Inefficiency of Saccos in Kenya: Total Revenue Output Slack Analysis

Abstract

This study assessed the determinants of technical inefficiency of Saccos in Kenya. The explanatory research design was applied. The certified annual reports information was collected from a census total of 46 deposit taking Saccos and methods used in estimation of technical inefficiency were both non-parametric DEA and parametric SFA. The log truncated panel data covered a period of 8 years (2007-2014). The result indicates insignificant influence of all predictor variables on inefficiency given total revenue output (TR) slack as hypothesized in agency, x-inefficiency and intermediation theories. TR slack regression reflects a significant managerial influence as indicated by Gamma (0.999956). However, DEA result of all Saccos showed 0.024 mean inefficiency. The TR slack is key in identifying managerial inefficiency, thus apt for decision making while the relationship between earnings management and the insignificance of predictors given TR slack, should be explored in the future studies.

Keywords: Saccos in Kenya, Technical Inefficiency, Total Revenue Output Slack.

DOI: 10.7176/RJFA/11-8-05

Publication date: April 30^th 2020