Exogenous Constituent and Capital Structure of Small and Medium Enterprise in Kitui County, Kenya
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Date
2023
Authors
Mwanzi, James Munyalo
Journal Title
Journal ISSN
Volume Title
Publisher
IAJEF
Abstract
Small and medium-sized enterprises'
development and operations depend majorly
on the capital structure financing choice.
Their capital structure choice is majorly
influenced by various elements. Equity and
debt capital are the major sources of Capital
to most of Kenyan SMEs. Equity capital is a
fund contributed by the shareholders, while
Debt finances are borrowed from
moneylenders. SMEs contribution to most of
economies cannot be underrated, their
contributions ranges from job creation,
provision of quality goods and services at
comparatively reduced prices and tax
payment to the governments. Most of less
developed countries encounters major
economic problem such as persistent
unemployment, rapid rise in inflation and disequilibrium in balance of payment which
SMEs tend to work toward solving them to a
given extend. Despite of all this contribution,
the operation and performance of SMEs are
adversely affected by the choice of capital
structure. External contributes such as market
conditions, cost of capital and investors
attitude adversely influence the choice of
capital structure. In 2017, the Kenya National
Bureau of Statistics surveyed SMEs financing
challenges. The study established that a few
SMEs do not celebrate their second birthday
while several of them do not manage to reach
fifth birthday, which raised concerns on their
sustainability. As a matter of quick fix an
investigation to establish the cause massive
failure of SMEs in Kenya was called to assist
Kenyan get the root of this major issue. This
study examined the effect of extraneous
factors on SMEs Capital structure in Kitui
County, Kenya. The done study was anchored
on Signaling theory, Agency theory and
Tradeoff theory. Descriptive research design
was employed on the study, and questionaries
administered to collect data from 150 SMEs.
Data collected was analyzed using multiple
regression analysis by use of SPSS and
findings presented by tabulation, charts, and
diagrams for easy visualization. The study
established that external Contributes have got
negative effect on the capital structure of
SMEs. Training programs were
recommended to correct this as many of
entrepreneurs in these SMEs were found
unaware of issues to do with capital structure.
secondly the study recommended formulation
of policies by government to control the
operations of SMEs as most of them were
operating informally such that to get the data
which can assist in helping them stand was
hard. Initiatives to motivate entrepreneurs was
found to be best way to address and supply
SMEs with required information which can
assist them grow, the need to have structured
way of information exchange and sharing was
also found to be of great importance in
entrepreneurial environments.
Description
Article
Keywords
Extraneous Factors, Capital Structure, Cost of Capital, Market Condition, Investors Attitude
Citation
Mwanzi, J. M. (2023). Exogenous constituent and capital structure of small and medium enterprise in Kitui County, Kenya. International Academic Journal of Economics and Finance, 4(1), 71-86.