The Nexus Between Working Capital Management Practices and the Financial Performance of Service Sector Small and Medium-sized Enterprises (SMEs) in Nairobi City County, Kenya
DOI:
https://doi.org/10.53819/81018102t2258Abstract
Working capital management practices play key roles in the financial performance of organizations. Firms that endeavor to enhance their financial performance strategize on working capital management to improve on cash flow management and earnings quality through efficient use available resources. Scholarly interest on how SMEs can enhance their financial performance through effective working capital management practices has continued to increase due to the significant contribution of the service sector SMEs to the growth of economies around the world. Nevertheless, empirical research linking working capital management practices and the financial performance of service sector SMEs in Nairobi City County is inadequate. The current study sought to investigate the nexus between working capital management practices and the financial performance of service sector SMEs in Nairobi City County, Kenya. The study was anchored by two theories, including, capital budgeting theory and the pecking order theory. The study adopted a correlational research design and targeted a population of 4,857 SMEs owners, managers, or their equivalents from which a sample of 370 participants were selected to participate in the study. The Statistical Package for Social Sciences (SPSS) was used to analyze descriptive and inferential statistics. The study findings confirmed a positive and statistically significant relationship between working capital management practices and the financial performance of sector SMEs in Nairobi City County, Kenya. The study findings may be helpful in informing favorable policy formulation and economic environment conditions that the county and national government can provide to SME firms for enhanced performance.
Keywords: Working capital management practices, financial performance, service sector, SMEs, Nairobi County.
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