Effect of owners’ char tal structure for small and medium enterprises in Eldoret town central business district(CBD)Kenya.

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