Abstract:
SMEs performance is very crucial since they contribute significantly to economic
growth and job creation around the globe. However, SMEs lack managerial capabilities,
shortage in financing and human resources to cope with ever dynamic business
environment which pushes them to outsource to improve their organizational
performance. By relying on outsourcing, SMEs can obtain the capabilities and
competences they require from external service providers. Therefore, the main aim was
to assess determinants of decision to outsource accounting functions and its effect on
performance of SMEs in Kenya. The specific objectives were: to determine the
mediating effect of decision to outsource on the relationship between Trust, technical
competence, resource availability and asset specification on SMEs performance. The
study was informed by agency theory. The population of study comprised of 335
registered SMEs in Uasin Gishu County. This study adopted explanatory research
design. Primary data were obtained from questionnaires. Cronbach’s alpha was used to
determine reliability, where Cronbach's coefficient having a value of more than 0.6 was
considered adequate. Multiple regression model was used to test hypothesis. The
findings showed a positive and significant effect of the determinants (manager’s trust,
technical competencies, resource availability and asset specification) on SMEs
performance, β = 0.8999 p-value = 0.000. More specifically, the manager’s trust has a
positive and significant effect on firm performance (β 1 = 0.220) p-value = 0.000.
Technical competencies has a positive and significant effect on firm performance (β 2 =
0.250) p-value = 0.000. Resource availability has a positive and significant effect on
firm performance (β 3 = 0.179 while asset specification has a positive and significant
effect on firm performance (β 4 = 0.328) p-value = 0.000. The regression model showed
that the decision to outsource has a positive and significant effect on firm performance,
β = 0.1764 p-value = 0.000. Accounting firms should have necessary resource to meet
the ever increasing SMEs demands.
