Effect of Financial Decisions on Financial Performance of Micro and Small Enterprises in Dairy Industry in Murang’a County, Kenya

Abstract

The objective of this research project was to determine the effect of financial decisions on financial performance of MSE’s in the dairy industry in Murang’a County, Kenya. The financial decisions entail financing decisions, investment decisions and adoption of technology in dairy farm operations. Financing decisions includes business firms making decisions on choice of funds such as debt or equity capital. Investment decisions includes making decisions on fixed assets such as dairy farm machinery and finally, adoption of technology entails use modern machines that improve efficiency and effectiveness of dairy farm operations such as milking thus enhancing financial performance. The research project deployed descriptive research design because it is a useful approach of acquiring and evaluating data so that research topics under discussion are addressed. The descriptive study design describes the state of circumstances as they are without affecting the outcome (Khan, 2008). A sample size of 84 MSE’s was chosen using simple random sampling procedure from a population of 280 MSE’s in dairy industry in Murang’a County. Financial performance is the dependent variable measured by net profit margin while independent variable is financial decisions that entails financing decisions, investment decisions and adoption of technology. The research project discovered that a single unit enhancement in financing decisions would consequently lead to an enhancement by 0.244 unit in financial performance of MSE’s in dairy industry. In addition, a single unit enhancement in investment decisions would result to an enhancement of 0.479 unit in financial performance of MSE’s in dairy industry in Murang’a County. Moreover, a single unit enhancement on adoption of new technology would lead to a decline by 0.391 unit in business financial performance of MSE’s in dairy industry. This is because most MSE’s in dairy industry in Murang’a County have not embraced use of technology because of high initial costs and lack of knowledge of available technologies in the market. Finally, 73.9% of financial performance of MSE’s in the dairy industry in Murang’a County can be explained by financing decisions, investment decisions and adoption of technology.