Influence of Alternative Financing on the Relationship between Firm Size and Efficiency of Small and Medium Enterprises in Kenya

Abstract

Globally, small and medium-size enterprises(SMEs) hold great economic growth potential, however their mortality rate is high, due to lack of credit. The SMEs mortality rate in Kenya is 90% by the second year. Scholarly endeavors to explore the influence of alternative finance (AF) on operational characteristics -efficiency nexus have received little attention, more so for SMEs who have unique financial needs. Although AF appears to be the preferred mode of financing and maintaining start-ups, its impact on the survival, growth and success of manufacturing SMEs is not well documented in Kenya. This study focused on establishing the influence of alternative financing on the relationship between firm-size and efficiency of SMEs in Kenya. The study used a cross-sectional research design. The target population was SMEs registered with Kenya Association of Manufacturers (KAM). The accessible population was 136 SMEs owner/managers. The study used a self-administered semi structured questionnaire to collect primary and secondary data. Data envelopment analysis was used to measure efficiency of SMEs, multiple regression modeling to analyze relationships and hierarchical moderated multiple regression analysis was used to assess the influence of the moderator. The findings revealed that firm-size positively (β = 0.214, t-value =4.983, P<0.05.) influences efficiency and that alternative finance does moderate (R-Square change 11.1 %) firm size relationships with efficiency. The study recommends that owner/managers of manufacturing SMEs in Kenya should give attention to opportunities for sustainable increase in firm size to improve their efficiency.