Abstract
Financial distress remains a major concern among Deposit-Taking Savings and Credit Cooperative Societies (DT-SACCOs) in Kenya, threatening their financial stability and sustainability. This study examined the influence of asset tangibility and asset quality on the financial distress of DT-SACCOs in Kenya. The study was anchored on the Trade-Off Theory and the Wrecker Theory of Financial Distress. A descriptive research design was adopted, targeting all 176 DT-SACCOs licensed by the Sacco Societies Regulatory Authority (SASRA) as at 31st December 2024. A census approach was employed, and secondary data were collected from audited financial statements covering the period 2015 to 2024. Financial distress was measured using the Altman Z-Score model, while asset tangibility was measured using the tangibility ratio and asset quality using the ratio of non-performing loans to gross loans. Data were analyzed using panel data regression with the aid of STATA software. The findings revealed that asset tangibility had a negative and statistically significant effect on financial distress (β = -424.456, p < 0.001), indicating that DT-SACCOs with higher levels of tangible assets experience lower levels of financial distress. The study further established that asset quality had a positive and statistically significant effect on financial distress (β = 324.480, p < 0.001), implying that deterioration in asset quality, reflected through increased non-performing loans, increases the likelihood of financial distress. The model explained 55.1% of the variation in financial distress (R² = 0.551) and was statistically significant (F = 78.245, p < 0.001). The study concludes that asset tangibility and asset quality are critical determinants of financial distress among DT-SACCOs in Kenya. The study recommends that SACCOs strengthen asset management practices and enhance credit risk management systems to minimize non-performing loans and improve financial stability.
Keywords: Asset Tangibility, Asset Quality, Financial Distress, Deposit-Taking SACCOs, Altman Z-Score, Non-Performing Loans, Kenya.