Effects Of Owner Accounting Practice Competencies On The Financial Performance Of Small And Medium Enterprises In Kenya. A Case Of Kasarani Sub County, Nairobi City County

Abstract

The study was carried out in the field of finance and accounting practices competencies with focus being on the performance of Small and Medium Enterprises (SMEs). The study had four variables which had several indicators to determine their effect on financial performance. Performance is contingent to many factors; This study sort to establish the influence of owner accounting practice competencies on the financial performance of SMEs operating in Kasarani Sub-County, in Nairobi City County, Kenya. The Kenyan Small and Medium Enterprise sector immensely contributes to economy and employment generation. However, its financial performance is still dismal as evidenced by the high collapse rate of SMEs in Kenya and specifically in Nairobi City County where very few SMEs survive up to the third generation. This might be attributed to poor accounting competencies by the SME Owners/Managers in the country. There is limited research on the relationship between; accounting information system, human resource accounting, accounting outsourcing and owner accounting orientation, and how they influence performance of SMEs in Kenya. Hence there is dire need for research such as the current one to establish these relationships. It is in this light, that the present study was conducted to lock this knowledge gap by providing recommendations on suitable approaches that can improve performance of SMEs in Kasarani Sub County. In its main objective, the study assessed the effects of owner accounting practice competencies on the financial performance of small and medium enterprises in Kasarani Sub County in Nairobi City County. Four specific objectives were developed and four hypotheses were tested to; Establish Effects of Accounting Information Systems, Effects of Human Resource Accounting, Influence of Accounting Outsourcing and Effects of Owner Accounting Orientation on Financial Performance of SMEs in Kasarani Sub County, Nairobi City County. The study is anchored on three theories; Resource Based view Theory, Transactional Cost Economics Perspective and Human Capital Theory. The study utilized a descriptive research design, having the Kasarani Sub County’s 754 SMEs as its target population and using 254 respondents as its sample size. The study employed stratified sampling to determine the number of respondents from each ward of Kasarani Sub-county, selected randomly using simple random sampling. In its data collection, structured questionnaire was used as a tool to collect primary data. Validity and reliability tests were done on the research tool before administration. Quantitative analysis technique was employed to produce descriptive statistics and inferential analysis carried out thereafter to establish a study model. The findings established that; accounting information systems, human resource accounting, accounting outsourcing and owner accounting orientation had statistically significant influence on financial performance of SMEs in Kasarani Sub County, Nairobi City County. The study revealed that, at (5%) or 0.05 level of significance, there exists positive and significant relationship between accounting information systems, human resource accounting, accounting outsourcing and owner accounting orientation are estimators of financial performance among SMEs in Kasarani Sub County and that 27.19% change in financial performance of Kenyan SMEs is explained by these variables. The results of the study support the theories anchoring the study and empirical literature. The study recommends for further similar research on SMEs operating in the other sub counties in Nairobi City County and also those outside Nairobi City County, since the current study was restricted to Kasarani Sub County and the Results cannot therefore be generalized.