Influence of Capital Structure on Leverage of Small and Medium Size Enterprises in Kenya
Carolyne Mwende Kyule
A Research Project submitted to the School of Human Resource Development in partial fulfillment for the Award of Master of Entrepreneurship of Jomo Kenyatta University of Agriculture and Technology
2014
I declare that this research project is my original work and has not been presented for a degree in any other university.
Signature………………………… Date……………………………………..
Carolyne Mwende Kyule
HD313-0204/2013
This research project has been submitted for examination with my approval as a University supervisor
Signature………………………. Date……………………………………..
Dr. Karanja Ngugi
ABSTRACT
An extremely essential element for start-ups and growing businesses to achieve is the availability of capital. There are always obstacles for SMEs to raise sufficient external finance to meet their needs. In Kenya SMEs have high collapse rate. Researches on the SMEs capital structure clearly show that there is a massive difference between SMEs financing behavior and their large counterparts. Therefore the study sought to find out whether the mortality of SMEs in Kenya is caused by Capital Structure on the leverage of the firm. The study was guided by the following variables: firm size, firm profitability, firm age, firm risk and firm asset structure.
This study adopted a descriptive survey design. The study was conducted on the SMEs in Nairobi. The population comprises of 4300 SMEs. Stratified proportionate random sampling technique was used to select the sample. The study grouped the population into the various sectors i.e. Manufacturing, Trading and Service sectors. From each sector the study used a proportion of 10% from each stratum to select 430 SMEs. Primary as well as secondary data was collected. Primary data was collected using questionnaires. Secondary data was obtained from relevant literature review from studies, journals, magazines and the internet. The completed questionnaires were then tabulated, coded and processed by use of a computer Statistical Package for Social Science (SPSS) version 21 to analyze the data. Descriptive statistics such as mean and standard deviation was used. Tables, pie charts, and graphs were used to present responses and facilitate comparison. In overall, the study found that capital structure has positive relationship with leverage of SMEs in Kenya. Therefore it can be concluded that firm risk which had the lowest P-value of 0.001 is the most significant variable as a component of capital structure on leverage of SMEs in Kenya.