Abstract:
Efficient financial policy lowers the business risk, improve the net present value of the firm’s
investment projects and maximize the shareholders’ value. However, the effect still not studied
yet in the study area. Therefore, the aim of this study is to empirically examine the effects of
corporate governance and balance sheet features on the financial policy of cooperatives in south
west Ethiopia using the PLS SEM model. Three years’ data from 2020 to 2022 were collected
from 145 cooperatives. The study used managerial characteristics’ as the control variables,
corporate governance and balance sheet features as the latent variables that affect the
dependent variable cooperative financial policy measured both by short term debt and total debt.
The study found that corporate governance has significant but negative effect on the financial
policy of cooperatives in south west Ethiopia. It was found that balance sheet features are
significant and positive effect on the financial policy of cooperatives in south west Ethiopia.
Furthermore, managerial characteristics’ have positive effect on the financial policy and
balance sheet features and no effect on the corporate governance of cooperatives in south west
Ethiopia. Thus, the study concludes that all corporate governance, balance sheet features and
managerial characteristics’ have significant effect on the financial policy of cooperatives in
south west Ethiopia. Therefore, the study recommends that in developing up their financial
policy, cooperatives need to take into account managerial characteristics’, corporate governance,
and balance sheet features.
