Effect of Equity Financing on Performance of Small and Medium Scale Enterprises in Bungoma County Kenya

Abstract

The study sought to investigate the effect of equity financing on the performance of SMEs in Bungoma County Kenya. Under the empirical literature review, the study discussed current and relevant studies to the topic. Under the theoretical literature review, pecking order theory was discussed. Descriptive and inferential research designs were then used. The study area was Bungoma County located in western Kenya with an approximate size of 2207KM2. The target population was 4721 licensed SMEs retail shops operating in the county while simple random sampling technique was used to select a sample of 368 SME retail shops. Data was collected using structured Likert scale questionnaires to obtain opinions from SMEs managers and owners. A pilot study was then conducted to test the reliability and validity of the data collection instruments. Descriptive and Inferential data analysis were then used. The descriptive statistics revealed that majority of the SMEs use equity financing in their capital structure. Similarly, it was revealed that SMEs had been witnessing an increase in performance measured by return on equity, return on assets and return on capital employed. For inferential statistics, the correlation results showed that equity financing had a positive association with performance. The regression model was also statistically significant signifying that the variable equity financing explains the changes in performance of SMEs. The study concluded that equity financing have a statistically positive and significant effect on the performance of SMEs. The study recommended the government through the Micro and Small Enterprises Authority to make policies that will guide the SMEs on the way to increase the use of equity financing as well as the management and owners of SMEs to seek for strategies to increase their use of equity financing