Abstract:
Small and medium enterprises (SMEs) play an important role in the Kenyan
economy. Access to financial resources seems to be a major constraint to the growth
of SMEs in the country. Businesses need to finance for their expansion, production,
innovation, growth and development. For SMEs to survive and grow access to debt
finance is critical. Owner’s characteristic is an important determinant of finance
option among SMEs. The aim of the study was to determine the SMEs owner’s
characteristics and their effect on capital structure in Eldoret Town Central Business
Unit. The characteristics analyzed in relation to capital structure include; managerial
competence, self-efficacy, overconfidence, owner’s social networks and owner’s risk taking capability. The study was informed by Leader Motive Profile Theory.
Explanatory research design was adopted, the study targeted 295 SME’s which are
registered under Companies Act Cap 486 within Eldoret Town CBD. Stratified
sampling technique was used to select a sample size of 170 managers/owners of the
enterprises. Structured questionnaire was used to collect primary data. Both
descriptive and inferential statistics were used to analyze data. Descriptive statistics
namely, frequency distribution, percentages and measures of central tendencies were
used to describe characteristics of the data while statistical significance of
relationships among selected variables were determined using Pearson Correlation
and Multiple Regression Model. The regression analysis results indicated that
managerial competence (β1= 0.192, P value=0.007<0.05, self-efficacy (β2= 0.161, P
value=0.034<0.05); social network (β4= 0.367, P value=0.000<0.05) and risk taking
(β5 = 0.337, P=0.000<0.05) had a positive impact on capital structure while
overconfidence (β3= -0.276, P value= 0.000<0.05 had a negative impact on capital
structure. Therefore, the study concludes that a combination of SMEs owners’
characteristics including managerial competence, self-efficacy, social networks, and
risk-taking are necessary for determining a good capital structure for an enterprise.
Finally, the study recommends that; SME owners should have the belief that they are
capable of succeeding in any business. They should also be self-starters and flexible
to adapt to any changes in the market conditions in as far as sourcing capital for the
enterprise is concerned
