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Research Exam

This study examined the effect of financial management practices on the financial performance of small and medium enterprises (SMEs) in Kiambu Town, Kenya. The study found that working capital management, investment decisions, and financing decisions each had a positive relationship with financial performance, with financing decisions having the strongest influence. Collectively, financial management practices explained 18.3% of the variance in financial performance. The study concluded that effective financial management leads to enhanced financial performance for SMEs.

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52 views

Research Exam

This study examined the effect of financial management practices on the financial performance of small and medium enterprises (SMEs) in Kiambu Town, Kenya. The study found that working capital management, investment decisions, and financing decisions each had a positive relationship with financial performance, with financing decisions having the strongest influence. Collectively, financial management practices explained 18.3% of the variance in financial performance. The study concluded that effective financial management leads to enhanced financial performance for SMEs.

Uploaded by

anaira wahab
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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SHA ANAIRA WAHAB/10 EMERALD/MAY 3,2021

Effect Of Financial Management Practices on Financial Performance of

Small and Medium Enterprises in Kiambu Town, Kenya

Problem of the study:

Past statistics indicate that three out of five Small and Medium Enterprises

(SMEs) fail within the first few years of operation (Kenya National Bureau of

Statistics, 2007). According to Ong’olo and Odhiambo (2013) the subsector is

still performing dismally. The lack of proper financial management is one of the

issues that easily lead to the collapse of SMEs despite improved access to

financing (Longenecker, et al., 2006). If interventions regarding how these SMEs

conduct financial management is not addressed, their collapse will not only

threaten job creation and entrepreneurship, but will impede economic growth

and development.

Statement of the problem:

The Small and Medium Enterprises (SMEs) play an important role in the Kenyan

Economy. This sub-sector contributed over 50 percent of new jobs created in the

year 2005 (The Economic Survey, 2006) and contributes about 20% of GDP.

Despite their significance, past statistics indicate that three out of five SMEs fail

within the first few years of operation (Kenya National Bureau of Statistics,

2007). According to Ong’olo and Odhiambo (2013) the subsector is still

performing dismally. Because of their small size, simple management mistakes

lead to the collapse of SMEs. Lack of proper financial management is one of the
issues that easily lead to the collapse of SMEs despite improved access to

financing (Longenecker, et al., 2006). If interventions regarding how these SMEs

conduct financial management is not addressed, their collapse will not only

threaten job creation and entrepreneurship, but will impede economic growth

and development. This research sought to find out how the SMEs conduct their

financial management and how the practices affect their financial performance.

This enabled provision of recommendations on remedial measures.

The following are the research questions this study sought to answer.

i. What is the effect of working capital management on the financial performance

of Small and Medium Enterprises in Kiambu town?

ii. What is the contribution of investment decisions towards the financial

performance of Small and Medium Enterprises in Kiambu town?

iii. How does financing decisions affect the financial performance of Small and

Medium Enterprises in Kiambu town?

Respondents:

The respondents are the 100 SME owners and managers in Kiambu town.

Sampling Technique used:

The study used random sampling method to sample 100 SMEs located within

the study area, Kiambu town.

Findings and Results of the study:

First, the study showed a weak but a positive relationship between working

capital management and financial performance. This means that financial


performance can be predicted by working capital management system adopted

by the SME. Zero point five percent variance in financial performance was

attributed to capital management alone. That is, an effective working capital

management leads to an enhanced financial performance of the SME. Secondly,

the study showed a weak positive relationship between investment decisions and

financial performance. This means that financial performance can be predicted

by investment decisions adopted the SME. Zero point two percent of variance on

financial performance was attributed to investment decisions alone. That is, an

effective investment decision leads to enhanced financial performance of the

SME. Thirdly, the study showed a moderate positive relationship between

financial decisions and financial performance. The study indicated that

considered individually, financial decisions contributed 16% variance in

financial performance. This means that financial performance can be predicted

by financial decisions adopted the SME. That is, an effective financial decision

leads to enhanced financial performance of the SME. Finally, the study showed

that the combined effect of financial management practices [working capital

management, investment decision, financial decision] have a moderate positive

relationship between financial management practices and financial performance.

The study indicated that considered collectively, financial management practices

contributes to 18.3% variance in financial performance. The other 81.7 %

variance in financial performance would be attributed to other factors beyond

the scope of the study.


Reference:

Daniel Mulinge Nthenge, Japhet Ringera (2017), Effect Of Financial Management

Practices on Financial Performance of Small and Medium Enterprises in Kiambu

Town, Kenya

https://poseidon01.ssrn.com/delivery.php?ID=4021190710980930111161191

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05800610001612101606609011606411607909510403206906500606801207

30690850931130890690550300201180861140681000001120911210920920

00070102016023023009119122019066071071094&EXT=pdf&INDEX=TRUE

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