CAPITAL INVESTMENT DECISIONS AND GROWTH OF REGISTERED SMALL AND MEDIUM ENTERPRISES IN NAIROBI CITY COUNTY, KENYA
CAPITAL INVESTMENT DECISIONS AND GROWTH OF REGISTERED SMALL AND MEDIUM ENTERPRISES IN NAIROBI CITY COUNTY, KENYA
Abdikadir Adan Khalif - Master of Business Administration Student, Department of Accounting and Finance, School of Business Economics and Tourism, Kenyatta University, Kenya
Dr. Moses Odhiambo Aluoch (PhD) - Lecturer, Department of Accounting and Finance, School of Business Economics and Tourism, Kenyatta University, Kenya
ABSTRACT
Small and Medium Enterprises are the heart of the economy of Kenya, with an estimated population of 7.4 million enterprises, where only 21% are registered while the rest operate informally. They constitute 98% of all businesses, employ approximately 14.9 million Kenyans, and contribute approximately 40% of the Gross Domestic Product of the country. However, nearly 46% of Small and Medium Enterprises fail within the first year of operation, mainly due to lack of working capital, and the sector faces a financing gap. Structural barriers such as inaccessible affordable credit, long cash-to-cash cycles that tie up 75% of working capital, heavy taxation and licensing requirements, and weak infrastructure further hinder their growth. Additionally, Small and Medium Enterprises face challenges in market access, with lack of markets affecting about 18% of firms, alongside high local and international competition and shortage of skilled labour. Therefore, this study investigated the effect of capital investment decisions on the growth of registered Small and Medium Enterprises in the Central Business District of Nairobi City County, focusing on expansion, replacement, modernization, contingency, and diversification investment decisions. The study was underpinned by Modern Portfolio Theory, Wealth Maximization Theory, Prospect Theory, and Greiner’s Growth Model. A descriptive research design was adopted, and simple random sampling was used to obtain a sample of 396 Small and Medium Enterprises from a target population of 33,701 Small and Medium Enterprises using the Slovin’s formula. Primary data were collected using semi-structured questionnaires and structured interview guides. Data were analyzed using both descriptive statistics and inferential statistics. Diagnostic tests such as multicollinearity, normality, and heteroskedasticity were conducted to ensure the suitability of the data. Ethical considerations were observed throughout the study. The research findings indicated that capital investment decisions significantly influenced Small and Medium Enterprises growth in Nairobi Central Business District. Expansion investment decisions showed a strong positive and significant relationship with Small and Medium Enterprises growth, while replacement investment decisions also had a significant positive effect. Modernization investment decisions had the strongest influence on Small and Medium Enterprises growth, making it the most critical determinant of performance. Contingency investment decisions also showed a significant positive relationship, while diversification investment decisions had a positive but statistically insignificant effect. Overall, capital investment decisions jointly had a substantial proportion of variation in Small and Medium Enterprises growth, confirming their importance in business performance. The research concluded that capital investment decisions serve a critical role in enhancing the growth and sustainability of Small and Medium Enterprises in Nairobi Central Business District. Modernization was identified as the most influential factor, followed by expansion, replacement, and contingency investment decisions, while diversification had a weak and insignificant effect in the short term. It was further concluded that effective investment decision-making is essential for improving efficiency, competitiveness, and long-term Small and Medium Enterprises survival. The study recommended that Small and Medium Enterprises prioritize modernization by adopting digital technologies and innovation, and also strengthen expansion strategies to improve market reach and performance and also regularly upgrade or replace out-dated equipment to enhance efficiency and productivity.
