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Year 2015, Volume: 2 Issue: 3, 0 - 0, 29.09.2015

Abstract

References

  • Acs, Zoltan and David Audretsch, (2001). The Emergence of the Entrepreneurial Society, Presentation for the Acceptance of the 2001 International Award for Entrepreneurship and Small Business Research, Stockholm, May, 200
  • Akhtar, S. (2005). The determinants of debt financing for Australian multinational and domestic corporations.
  • Australian Journal of Management, 30(2), 321 Baum.C.F, Schafer.D, and Talavera.D.,(2007), The Effects of Short-Term Liabilities on Profitability: A Comparison of German and US Firms, DIW Berlin, K¨onigin-Luise-Str
  • Berger, A. and Udell, G. (1998) ‘The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle’, Journal of Banking & Finance vol. 22, 613–73.
  • Caprio, G. & Demirgue-Kunt, K. 1997. The Role of long term finance: theory and Evidence. Washington D.C . World Bank
  • Chell, Elisabeth- Baines, Susan (1998) Does Gender affect business “performance”? A study of micro-businesses in business services in the UK. Entrepreneurship & Regional Development, 10, p.117-135.
  • Fama, E. F., K. R. French, (2002), ‘Testing Trade-Off and Pecking Order Predictions about Dividends and Debt’, The Review of Financial Studies Vol. 15 No. 1, pp. 1–33.
  • García-Teruel. P. J., And Solano P.M., (2007), Trade Credit and SME Profitability, International Small Business
  • GOK, G. o. (2009). Economic Survey. Nairobi: Government Printer.
  • Graham, J. R. (2000). How big are the tax benefits of debt? Journal of Finance, 55(5), 1901-1941.
  • Gregory W. Brown.G.W., Chavis.L.W., and Klapper.L.F.,2010, A New Lease on Life: Institutions, External
  • Financing, and GrowthAmerican.Finance Association Hart, O., and J. Moore. 1995. “Debt and Seniority: An Analysis of the Role of Hard Claims in Constraining
  • Management.” American Economic Review (June): 567-585. Hernandez-Canovas, G., J. Koëter-Kant, (2008), “Debt Maturity and Relationship lending”, International Small Business Journal, 26, 5, 595-615
  • Jaramillo, F., F. Schiantarelli and A. Weiss, (1996). “Capital Market Imperfections Before an After Financial
  • Liberalization: An Euler Equation Approach To Panel Data for Ecuadorian Firms.” Country Economics Department Working Paper 1091. Washington, DC, United States: World Bank.
  • Landier, A., D. Thesmar, (2009), “Financial Contracting with Optimistic Entrepreneurs”, The Review of Financial Studies, 22, 1, 117-150
  • Miwa, Y., J. M. Ramseyer, (2008), “The Implications of Trade Credit for Bank Monitoring: Suggestive Evidence from Japan”, Journal of Economics and Management Strategy, 17, 2, 317-343
  • Moro, Andrea; Lucas, Michael; Bazzanella, Claudio and Grassi, Edo (2009). The short term debt vs. long term debt puzzle: a model for the optimal mix. In: 5th Conference on Performance Measurement and Management
  • Control, 23-25 September 2009, Nice, France.
  • Pindalo, J., L. Rodrigues, C. de la Torre,(2006), “How Does Financial Distress Affect Small Firms’ Financial
  • Structure?”, Small Business Economics, 26, 377-391
  • Rajan, R. G. and Winton, A. (1995), ‘Debt covenants, collateral, and delegated monitoring’, Journal of Finance 50(5), 1113–46.
  • Robb, A., & Robinson, D. T. (2008). The capital structure decisions of new firms: Second in a series of reports using data from the Kauffman Firm Survey. Available at SSRN: http://ssrn.com/abstract=1292552
  • Sandberg, K.- Vinberg, S. - Pan, Y. (2002) An exploratory study of women in micro enterprise; owner perceptions of economic policy in a rural municipality: Gender-related differences. In: CD- proceedings of 12th Nordic
  • Conference on Small Business Research. Creating Welfare and Prosperity through Entrepreneurship. Kuopio Finland May 26-28, 2002. p. 1 14.
  • Tanko, (2002), the Effect of Restructuring on the Financing Pattern of Development Banks in Nigerian
  • International Review of Business Research Papers Volume 6 . Number 4. September 2010. Pp. 157–167

DEBT FINANCING AND FINANCIAL PERFORMANCE OF SMALL AND MEDIUM SIZE ENTERPRISES: EVIDENCE FROM KENYA

Year 2015, Volume: 2 Issue: 3, 0 - 0, 29.09.2015

Abstract

Debt ratios in large firms have been examined by a number of researchers while smaller firms have attracted less attention. The financial policies of large listed companies often differ from smaller firms because they raise funds by issuing debt or equity into capital markets. As such this study sought to investigate the effects of debt financing on the financial performance of SMEs. The objectives of the study were to determine the effects of long-term loans and short-term loans on SMEs financial performance. The study was guided by optimal capital structure theories. The study target 4122 SMEs in Eldoret town. Stratified sampling technique was used to select a sample size of 50 SME firms in Eldoret Town. The study collected quantitative secondary data from SMEs’ financial statements for three consecutive years (2011-2013). The reliability and validity of the data collection instrument was done using Cronbach Alpha. Multiple Regression analysis was used to test study hypothesis. The results revealed that short term loansβ=-0.304, and long term loans β=-0.155 had negative impact on financial performance of SMEs. The study concluded that long term and short term loans reduce financial performance of SMEs. The study recommends that SME should utilize loans, diversify for sustainability of revenue, keep proper books of accounts, offer clients sales contracts and lay down payment modes for trade credits, clearly stipulate the payment schedules, in order to deter poor credit and loan control policies and train their staff regularly while employing experienced internal and external auditors to improve on the internal control systems and book keeping.

References

  • Acs, Zoltan and David Audretsch, (2001). The Emergence of the Entrepreneurial Society, Presentation for the Acceptance of the 2001 International Award for Entrepreneurship and Small Business Research, Stockholm, May, 200
  • Akhtar, S. (2005). The determinants of debt financing for Australian multinational and domestic corporations.
  • Australian Journal of Management, 30(2), 321 Baum.C.F, Schafer.D, and Talavera.D.,(2007), The Effects of Short-Term Liabilities on Profitability: A Comparison of German and US Firms, DIW Berlin, K¨onigin-Luise-Str
  • Berger, A. and Udell, G. (1998) ‘The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle’, Journal of Banking & Finance vol. 22, 613–73.
  • Caprio, G. & Demirgue-Kunt, K. 1997. The Role of long term finance: theory and Evidence. Washington D.C . World Bank
  • Chell, Elisabeth- Baines, Susan (1998) Does Gender affect business “performance”? A study of micro-businesses in business services in the UK. Entrepreneurship & Regional Development, 10, p.117-135.
  • Fama, E. F., K. R. French, (2002), ‘Testing Trade-Off and Pecking Order Predictions about Dividends and Debt’, The Review of Financial Studies Vol. 15 No. 1, pp. 1–33.
  • García-Teruel. P. J., And Solano P.M., (2007), Trade Credit and SME Profitability, International Small Business
  • GOK, G. o. (2009). Economic Survey. Nairobi: Government Printer.
  • Graham, J. R. (2000). How big are the tax benefits of debt? Journal of Finance, 55(5), 1901-1941.
  • Gregory W. Brown.G.W., Chavis.L.W., and Klapper.L.F.,2010, A New Lease on Life: Institutions, External
  • Financing, and GrowthAmerican.Finance Association Hart, O., and J. Moore. 1995. “Debt and Seniority: An Analysis of the Role of Hard Claims in Constraining
  • Management.” American Economic Review (June): 567-585. Hernandez-Canovas, G., J. Koëter-Kant, (2008), “Debt Maturity and Relationship lending”, International Small Business Journal, 26, 5, 595-615
  • Jaramillo, F., F. Schiantarelli and A. Weiss, (1996). “Capital Market Imperfections Before an After Financial
  • Liberalization: An Euler Equation Approach To Panel Data for Ecuadorian Firms.” Country Economics Department Working Paper 1091. Washington, DC, United States: World Bank.
  • Landier, A., D. Thesmar, (2009), “Financial Contracting with Optimistic Entrepreneurs”, The Review of Financial Studies, 22, 1, 117-150
  • Miwa, Y., J. M. Ramseyer, (2008), “The Implications of Trade Credit for Bank Monitoring: Suggestive Evidence from Japan”, Journal of Economics and Management Strategy, 17, 2, 317-343
  • Moro, Andrea; Lucas, Michael; Bazzanella, Claudio and Grassi, Edo (2009). The short term debt vs. long term debt puzzle: a model for the optimal mix. In: 5th Conference on Performance Measurement and Management
  • Control, 23-25 September 2009, Nice, France.
  • Pindalo, J., L. Rodrigues, C. de la Torre,(2006), “How Does Financial Distress Affect Small Firms’ Financial
  • Structure?”, Small Business Economics, 26, 377-391
  • Rajan, R. G. and Winton, A. (1995), ‘Debt covenants, collateral, and delegated monitoring’, Journal of Finance 50(5), 1113–46.
  • Robb, A., & Robinson, D. T. (2008). The capital structure decisions of new firms: Second in a series of reports using data from the Kauffman Firm Survey. Available at SSRN: http://ssrn.com/abstract=1292552
  • Sandberg, K.- Vinberg, S. - Pan, Y. (2002) An exploratory study of women in micro enterprise; owner perceptions of economic policy in a rural municipality: Gender-related differences. In: CD- proceedings of 12th Nordic
  • Conference on Small Business Research. Creating Welfare and Prosperity through Entrepreneurship. Kuopio Finland May 26-28, 2002. p. 1 14.
  • Tanko, (2002), the Effect of Restructuring on the Financing Pattern of Development Banks in Nigerian
  • International Review of Business Research Papers Volume 6 . Number 4. September 2010. Pp. 157–167
There are 27 citations in total.

Details

Journal Section Articles
Authors

Peter Nderitu Githaigo This is me

Charles Githinji Kabiru This is me

Publication Date September 29, 2015
Published in Issue Year 2015 Volume: 2 Issue: 3

Cite

APA Githaigo, P. N., & Kabiru, C. G. (2015). DEBT FINANCING AND FINANCIAL PERFORMANCE OF SMALL AND MEDIUM SIZE ENTERPRISES: EVIDENCE FROM KENYA. Journal of Economics Finance and Accounting, 2(3). https://doi.org/10.17261/Pressacademia.2015312967

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