The effect of financing sources on the financial performance of top 100 mid-sized companies in Kenya

Abstract

The objective of this study was to examine the effects of sources of finance on the performance of Top 100 mid-sized companies in Kenya. Descriptive cross sectional research design was adopted for this study. The target population for this study were the 100 SMEs (2013) in Kenya. Simple random sampling was used to select 30% of the top 100 companies. The sample size was therefore 30 SMEs. Primary data was collected through the use of questionnaires which were designed based on the study objective. Data was entered into SPSS and analysed using inferential statistics and regression analysis. The descriptive results showed that 77% of the firms had used personal income as a source of financing, 60% used bank loans, 57% used venture capital, 40% used leasing, 43% used sale of shares, 17% used government loans, and 13% used microfinance. All these sources were used by most firm to a low extent as financing options. The regression results show that personal income, bank loans, microfinance, and government loans had weak positive effects while venture capital, leasing, and sale of shares had weak negative effects on the financial performance of Top 100 companies in Kenya at 5% level of significance. The study concludes that the sources of finance do not affect the financial performance of Top 100 companies in Kenya. The study recommends the need for use of a mix of financing options to improve the financial performance of organisations rather than reliance on one form of financing. The study also recommends that the Government should be instrumental in offering loan facilities for businesses as currently very few mid-sized firms have used this method of financing.