External Elements and Capital Structure of Small and Medium Enterprise in Kitui County, Kenya
Mwanzi, James Munyalo
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Small and medium-sized enterprises' development and execution depend majorly on the capital structure financing choice. The choice of capital structure for small medium enterprises is majorly influenced by various elements which mostly hinder their success. Small and medium-sized enterprises depend on equity and debt capital. The equity finance is sourced from the shareholders, While Debt financing is cash which is borrowed from moneylenders. Small and medium-sized enterprises have a significant contribution to the country's economy by contributing through taxes, job creation, provision of quality goods and services at comparatively reduced prices. Despite of this contribution, the operation and performance of small and medium enterprises are adversely affected by the choice of capital structure. External elements such as market conditions cost of capital and attitude of the investors adversely influence capital structure choice. In 2017, the Kenya National Bureau of Statistics surveyed Small and Medium Enterprises financing challenges. The study established that a good number of small and medium enterprises do not celebrate their second birthday while a number of them do not manage to reach fifth birthday, which raises concerns on the sustainability of those business enterprises. This calls for an investigation to establish whether these external elements have an effect on the capital structure of small and medium-sized enterprises. This study examined the effect of external elements on small and medium-sized enterprises' Capital structure in Kitui County, Kenya. Throughout the study, theories of capital structure such as Signaling, Agency and Trade-off theories were used to analyze the external elements on capital structure. The research design was descriptive to collect data from 150 small and medium enterprises in Kitui County using a structured questionnaire. Data analysis was done using multiple regression analysis in Statistical Packages for Social Sciences and findings presented by tabulation, charts and diagrams. The study found out that, external elements have negative effect on the capital structure of small and medium enterprises in Kitui County. The study recommends for the government to come up with training programs for small and medium enterprises to enable them manage challenges posed by the capital structure choice. Further, the government should provide benchmarking workshops for Kenyan small and medium enterprises with others in developed countries to enhance new ideas.