| dc.description.abstract | Small and Medium Enterprises (SMEs) use different sources of financing. Some of them
emerging to be a challenge to the performance of the SME since most SME owners’ lack
necessary knowledge on which sources of finance enhances financial performance.
Despite SMEs using different sources of financing some of them are still not growing and
others are collapsing, majority of SME owners do not have ideas on how debts and
internal sources of finance influences their financial performance. Therefore, this study
aimed at establishing the relationship between capital structure and financial performance
of top 100 small and medium enterprises in Nairobi County. Capital structure employed
by firms could be a reason influencing their financial performance trends an issue
that has not been given serious attention. It is on this basis that the researcher was
propelled to investigate the contribution of capital structure on small and medium
firms’ financial performance. The study targeted 100 SMEs which are registered as
companies in Nairobi County. Simple random sampling was applied for choosing the
samples size. The sample size selected under proportional allocation was 30. Secondary
data was collected from financial records of SMEs. Documentary guide aided in data
collection. Descriptive statistics such as mean and standard deviation and inferential
statistic such as Pearson correlation and multiple regression model was used in analyzing
data. The findings revealed that capital structure had negative relationship on firm
financial performance of SMEs in Nairobi County. The study showed that small and
medium enterprises in Nairobi County used both debt and equity in their capital structure
although debt was predominant. There is evidence that capital structure has a positive
significant effect on ROA. From the findings, firm’s with more liquid stock is highly
likely to meet its financial obligations in the required time and higher liquidity is as a
result of proper organization of internal sources and debts. The study affirms that capital
structure has a significant effect on financial performance. From the study findings there
is enough prove that capital structure enables SMEs to engage in financial investments.
The results of study on the relationship between capital structure and performance of
SMEs are contradictory which justifies further research. | en_US |
