Capital Structure, Investment Decision and Financial Performance of SMEs in Uganda A Case of Central Uganda
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Date
2022-07-07
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Publisher
International Journal of Scientific Research and Management (IJSRM)
Abstract
The paper explored the relationship between capital structure, investment decision and financial
performance of SMEs in Uganda a case of Central Uganda. The study adopted a descriptive, crosssectional and correlational design. The sample size was 226 SMEs in Central Uganda.
The findings point to a moderate significant positive relationship between capital structure, investment
decision and financial performance of SMEs. Capital structure and financial performance of SMEs (r =
0.642, P-value = 0.000), investment decision and financial
performance of SMEs (r = 0.488, P-value = 0.000).
From the results, we confirm that capital structure, investment decision, predict up to 66.2% of the change
in financial performance of Small and Medium Enterprises in Central Uganda
The results show good model fits and fig.2 defines the model of capital structure and investment decisions
on financial performance of SMEs in Uganda and is encompassed of 4 proportions of capital structure in
terms of Equity, Long term Debt, Short term debt as well as investment decisions and their predictive
power on financial performance of SMEs in Uganda. Figure 2 and table 1 and 2 clearly indicate that
capital structure and investment decisions are significantly associated with return on assets (ROA) which
in turn leads to improved financial performance.
The study recommends an appropriate mix of capital structure coupled with premeditated investment
decisions so as to have improved financial performance of SMEs in Uganda.
The current study underwrites to academic research by providing empirical proof to support theories
pertinent to the elucidation of financial performance. The study was anchored on Pecking Order theory
together with Modigliani & Miller theory and the results depict the behaviours that managers have while
making decisions concerning capital structure and investment decisions. With such, the precursors of
capital structure, investment decisions on financial performance of SMEs in Uganda and other related
developing countries has been revealed.
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Keywords
Capital Structure, Investment Decision, Financial Performance, SMEs, Uganda.
Citation
Turyahebwa et al