EXOGENOUS CONSTITUENT AND CAPITAL STRUCTURE OF SMALL AND MEDIUM ENTERPRISE IN KITUI COUNTY, KENYA
EXOGENOUS CONSTITUENT AND CAPITAL STRUCTURE OF SMALL AND MEDIUM ENTERPRISE IN KITUI COUNTY, KENYA
James Munyalo Mwanzi - School of Business, Economics and Tourism, Kenyatta University, Kenya
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 dis-equilibrium 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.
