Reliability and validity of latent construct.

Effective financial policy minimizes business risk, increases the net present value of the Company’s investment programs and increases value for shareholders. However, the impact hasn’t yet been examined in the research area. The purpose of this study is to empirically investigate, how corporate governance and balance sheet aspects affect the financial policy of cooperatives in south-western Ethiopia using the PLS-SEM model. Information covering three years from 2020 to 2022 was gathered from 145 cooperatives. The study used corporate governance and balance sheet features as the latent factors that affect the dependent variable cooperative financial policy measured by both short-term debt and long-term debt. Managerial characteristics were used as the control variables. The study discovered that corporate governance has negative and significant effect on the financial policy of cooperatives in southwest Ethiopia. The study also revealed that balance sheet features have significant and positive effect the financial policy of cooperatives in southwest Ethiopia. Additionally, managerial characteristics’ have a significant impact on the financial policy and balance sheet features but have no impact on the corporate governance of cooperatives. The study concludes that the financial policy of cooperatives in southwest Ethiopia is significantly influenced by all aspects of corporate governance, balance sheet features, and management characteristics’. The study advises cooperatives to consider managerial characteristics’, corporate governance, and balance sheet characteristics while establishing their financial policy.