The influence of business group factors on the financial performance of informal micro retail enterprises in Nairobi, Kenya
Wanjiku, Caroline Grace
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The study focused on the informal micro retail sector in Nairobi researching on the enterprises in the Smart Duka project run by a Non-Governmental Organization. The study offered novelty by focusing on the most marginalized of micro enterprises in informal settlements in Nairobi while considering the effect of business groups and magnitude effect of group factors on financial performance of micro enterprises. Prior studies have focused more on areas outside the informal sectors of Nairobi and have had limited focus on the effect of group participation on financial performance of enterprises which the current study sought to address. In the project, various formal practices are used, which include training, merchandizing, book keeping, coaching, use of technology and innovation, inventory management, joint supply sourcing, loan accessibility and group associations which were considered under three main factors in the study; financial, managerial and strategic fit factors. The factors were also supported by various studies in literature review and the study motivated by research gaps in prior studies and the economic importance that the informal micro enterprise sector holds. The theories related to this study were the resource-based view theory and the social exchange theory. The study was based on an experimental research design with an explanatory purpose to explain the causal relationship between business group factors and financial performance of the enterprises and used primary and secondary data. Diagnostics, descriptive and inferential analysis using non- parametric tests were done which included correlation and ordinal regression. The financial performance and business factors of the enterprises that joined groups (treated group) were compared to financial performance and business factors of the enterprises that did not join groups (control group) in the project. Based on the results of the study, the null hypothesis of the study which stated that financial performance of enterprises in business groups (treated group) is less or equal to that of enterprises not in business groups (control group) was accepted due to the difference between the treated and control groups being statistically insignificant. However, the treated group financial performance was higher and hence ways of making this difference significant should be addressed. The managerial factors had positive insignificant effects; strategic fit factors had positive significant effects while financial factors had negative insignificant effects on financial performance of the enterprises.