Influence of Financial Determinants on Financing Structure among Women-Led Small and Medium Size Enterprises in Kenya.

Abstract

Despite the significant positive impact of SMEs on Kenya’s economy and the immense contribution to sustainable economic development through contribution to gross domestic product and creation of employment, the growth of this sector is highly threatened by the poor financial performance, which translates into collapse of most SMEs. Such would negatively affect the livelihood of households relying on these enterprises for their survival. Although numerous studies have analyzed the determinants of financing structure, the results obtained are mixed. Further, there is limited research on determinants of financing structure among women-led small and medium-size enterprises in Kenya. It is in this light that; the present study sought to establish how these factors influence financing structure given the lack of clarity from literature. The study was rooted in the research predicament due to the lack of clarity on the relationship between indicators of financial structure and long term survival of SMEs; especially because of the opposing theories of Modigliani and Miller Capital Structure Irrelevance Theory; the Pecking Order Theory and the Signaling Effect Theory. This study sought to appraise the influence of financial determinants on financing structure among women-led small and medium size enterprises in Kenya using cross-sectional survey. The target population was drawn from 1,746 Women-Led SMEs in Kajiado County. From this target population, a sample of 290 respondents was drawn using the Saunders, Lewis and Thornhill formula and the respondents were selected using proportionate stratified sampling approach. The study obtained its data from both secondary and primary sources. The primary data on firm’s quality of financial information was collected through administration of structured questionnaires to the respondents using drop and pick approach, while secondary data relating to total assets, sales turnover, cash flows from operations and profit drawings were collected using researcher’s developed institutional tool. The research tools were pretested for validity and reliability. Collected data was analyzed using both qualitative and quantitative analysis technique. After establishing the nature of SMEs using descriptive statistics and analysis of variance, the study used a Multiple Linear Regression to test the Null Hypotheses, at 95% confidence interval using the t-statistic and p-value. The study failed to reject the Null Hypothesis for growth to reveal that growth does not affect the financing structure of the SMEs. It, however, rejected the test of the null hypotheses for size, cash flow structure and quality of financial information; implying each positively affect the financing structure. Drawings policy had a negative effect on the financing structure. The study was limited to a cross-sectional analysis because of the poor record keeping aspects of the SMEs and focused only on Women-Led SMEs in Kajiado County, aspects that may limit the generalizability of the findings. It is recommended that similar studies be done in other counties and other spectra of SMEs to provide comparable findings. Regulators need to enhance efforts to facilitate growth, cash flows and quality of information available to SMEs.