Determinants of financial performance of small and medium sized enterprises in tourism sector in Mombasa county and environs, Kenya

Abstract

The study investigated the determinants of financial performance of small and medium sized enterprises in Tourism sector in Mombasa County and environs in Kenya. The research was guided by four specific objectives namely; the effect of debt financing, the effect of cost of debt, the effect of investment decisions and the effect of access finance on financial performance of SMEs. The target population of this research consisted of all SMEs as licensed by Tourism Regulatory Authority in Mombasa County and environs up to 2016. Stratified random sampling technique was employed in selecting the sample size out of the target population that constituted the sample size to be interviewed for this research. The study used both primary and secondary data. Primary data was collected using structured questionnaires for the main purpose of the study and secondary data was obtained from tourism regulatory authority SMEs, annual reports and some published reports. The study adopted descriptive research design. A structured questionnaire was designed to facilitate the relevant data collection which was used for analysis and administered by the researcher and his assistant. Data collected from SMEs was randomly selected using the questionnaire instrument. The questionnaire was complimented with the interview guide method of data collection. The researcher used qualitative approach which was essential for the study since it involves surveys, focus on groups and interviews. Statistical tools for quantitative data analysis were used. Factor analysis was used to assess the validity and Cronbach alpha to assess the reliability of the questionnaire. A pilot study of 10% of the sample size was conducted to check the reliability. Data was analyzed using descriptive statistics and inferential statistics method with the aid of statistical package for social science (SPSS version 20), and the hypotheses were tested at 0.05 significant level. Chi-square test, ANOVA, multivariate analysis correlation, and multiple regression analysis tests were also applied. The hypotheses analysis were tested within the range of 95% level confidence interval and 5% levels of significant. The regression results indicated significant relationship for both cost of debt and access to finance and insignificant relationship with both debt financing and investment decisions in explaining SMEs financial performance in terms of ROA in the tourism sector. The correlation results indicated that cost of debt indicated a positive moderate relationship with financial performance of SMEs and access to credit had positive and high relationship with financial performance. Debt finance and investment decisions had positive and weak relationship with SMEs financial performance in tourism sector in Mombasa County and enviros in Kenya. Conclusions were made that cost of debt and access to credit had significant effect whereas debt financing and investment decisions have positive and weak relationship effect with financial performance of SMEs in tourism sector in Mombasa County and environ Kenya. The study recommends that the government of Kenya to be supportive in terms of policy to improve the financing of SMEs. The study has strengthened our understanding on the determinants on financial performance of SMEs in tourism sector in Mombasa County and environs Kenya.