Determinants of outsourcing of Accounting function and its effect on performance of SMEs in Uasin Gishu

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.