Effect of capital structure on financial performance of SMEs funded by Uwezo fund in Meru county, Kenya

Abstract

In a nutshell, a company's capital structure is the way it raises money for its day-to-day operations and future expansion. Financial literacy refers to the ability to comprehend and make use of financial information, whereas business financing refers to the method by which a firm acquires its assets through a mix of debt and equity. The direct effects of capital structure and financial literacy on the financial performance of small and medium firms sponsored by the Uwezo fund in Meru County, Kenya, have been the subject of varied conclusions in previous academic investigations. These contradictory findings point to the necessity for additional studies that develop theoretical frameworks for studying financial performance that take capital structure and financial literacy into account. To better understand the complex interplay between capital structure, financial literacy, and financial success, it may be helpful to include such variables. With the help of the Uwezo fund, this research set out to analyze the performance of SMEs in Meru County, Kenya, and how factors like capital structure and financial literacy influenced that success. This study zeroed in on uwezo fund–funded SMEs in Meru County, Kenya, and looked at how internal equity, debt financing, and retained earnings impacted their performance. Also, in Meru County, Kenya, the study aims to determine how much the Uwezo Fund's support for small and medium businesses impacts their performance. The research was founded on the theories of Modigliani and Miller, Market Timing, Static Trade-off, and The Pecking Order. This descriptive study used Yamane's (1967) formula to determine that 329 people would be representative of the target demographic of 1859 SME owners in Meru County who have received Uwezo grants. Questionnaires were distributed to gather primary data, which was subsequently coded and analyzed using SPSS. Descriptive and inferential statistics were employed to examine quantitative data. The data was presented visually using figures and tables.