Does corporate governance and balance sheet features influence the financial policy of cooperatives in south west Ethiopia? A partial least square structural equation model (PLS SEM)

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.