The Interaction Effect of Stakeholder Engagement on Managerial Competencies- Financial Performance Nexus; Empirical Evidence from Microfinance Institutions in Uganda

Abstract

Purpose: This study examined the moderation effect of stakeholder management on the relationship between managerial competencies and financial performance of MFIs in Uganda. Materials and Methods: The study used a cross-sectional design, adopting a quantitative approach. This design was preferred because it does not require follow-up on the respondents as would be the case with a longitudinal design. The study used a structured self-administered questionnaire to collect data from the senior managers of 76 MFIs in Uganda. MFIs were selected using stratified simple random sampling while purposive sampling was applied to select senior management. Hierarchical multiple regression analysis using SPSS was employed to test the hypothesis. Hierarchical regression was preferred to other techniques because of its capacity to indicate what happens to the model as different predictor variables are introduced. Findings: Empirical findings from this study revealed that the financial performance of MFIs in Uganda is explained by managerial competencies and the relationship is moderated by stakeholder management. The results concretize that managerial competencies and stakeholder management fuse to influence financial performance. The study revealed that managerial competencies (β= .65, p<.001) and stakeholder management (β=.61, p<.001) are significant antecedents, accounting for a substantial 58% of the variance in the financial performance of MFIs (R2=.58, p<.001). Implications to Theory, Practice and Policy: The present study has confirmed that managerial competencies are a multidimensional predictor comprising of skills, knowledge, and abilities of the management team. It emerged that stakeholder management is a potent predictor with the potential to strengthen the effect of managerial competencies on financial performance. The study addresses mixed findings in the literature on financial performance and confirms upper-echelons and the stakeholder theory.