FACTORS THAT AFFECT FINANCIAL PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN NIGERIA

 ABSTRACT

The purpose of this study was to determine factors that affect financial performance of small and medium enterprises (SMEs) in Nigeria. The research questions for this study were: What was the effect of corporate governance on financial performance in the SMEs in Nigeria, the effect of human resource capacity on financial performance of SMEs and the influence of access to financing on financial performance of SMEs? A descriptive research design was adopted for this study. The target population of the study included the 4,560 SMEs in Nairobi County. Data available from the Ministry of Trade and Ministry of Industrialization, (2013) revealed that there were 2500 SMEs in Manufacturing, 1500 SMEs Trading and 560 SMEs in the service industry. Stratified sampling technique was used to determine a sample size of 100 from the total population. For this study, data was collected using structured questionnaires based on the research questions. Descriptive statistics included frequencies distribution, and percentages and mean, while inferential statistical analysis used included correlations, and regression. The first research question of the study was to investigate the influence of corporate Governance on financial performance of SMEs. The findings of the study indicated that majority (81.6%) of the respondents agreed that corporate governance affects financial performance. Equally, the study findings revealed a positive relationship between corporate governance and financial performance, (r= 0.491) p <0.05. The second research question of the study was to determine the effect of human resource on financial performance of SMEs. The study findings indicated that majority (89.5%) of the respondents agreed that HR department ensures that employees are conversant with new trends in technology adopted in market. The study findings also revealed that there existed a strong positive relationship between human resource and financial performance, r (0.414) p < 0.05, indicating the relationship was statistically significant. The third research question of the study was to determine whether access to financing affects financial performance of SMEs. According to the findings, the majority (81.6%) of the respondents agreed that access to financing was important for growth of SMEs r (0.612); p<0.05. The relationship was therefore statistically significant. In conclusion corporate governance, human resource and access to finance were statistically significant vi in explaining financial performance. This implies that SMEs generally had effective factors that improved their financial performance. Results led to the conclusion that corporate governance is a key determinant of financial performance. Results also led to conclusion that the SMEs had embraced and put into practice the structures of corporate governance and it worked for their good. The study clearly demonstrated the importance and the impact of human resource capacity on financial performance. SMEs ensured that their workers were being trained well for the betterment of the firms. The study came to a conclusion that access to finances was a key determinant of financial performance. Accessing bank loans easily improved the financial status of SMEs that subsequently led to reduction on the cost of finance which included higher interest rates, application fees, loan insurance premium, and legal fees. This in turn made it easy for SMES to grow as accessing finance became easier and less costly. The study recommended that the government of Nigeria be supportive to the SMEs by providing incentives to help them in implementing the corporate governance practices. SMEs were also encouraged to embrace corporate governance to the fullest to achieve better financial performance. SMEs were also recommended to consider financial monitoring to be done by the board and managers and board sub-committees. The board and managers also needed to be enlightened on the importance of corporate governance. The study recommended that SMEs should encourage employees training, compensation, performance appraisal and employee participation which were significant components to SMEs performance.

Advertisements