Effects of financial management practices on the growth of business startups in Nairobi County, Kenya

Abstract

Due to the ease with which business is now conducted country and its tremendous potential for income generation, Kenya keeps luring a lot of innovators. Although the aforementioned businesses are mostly responsible for Kenya's socioeconomic progress, yet they are going under at a high rate, which is harming the nation's economic expansion. A startup’s ability to flourish past the start-up stage is hampered by the fact that between 50% and 95% of them fail during the first five years of inception. In addition, by the second year, 40% of startups give up as 60% are expected to close by the end of the fourth year, and roughly 60% collapse by the fifth year. Despite the empirical evidence confirming the influence of financial management on the expansion of startups, the vast majority of empirical research works encompass contextual restrictions, conceptual discrepancies, and methodological deficiencies. More so, a great deal of the regional research on the growth of startups are currently getting involved in accelerator initiatives. This implies that there has not yet been a comprehensive literature review of the connection between financial management and the expansion of startups in Nairobi County, and this study addressed that gap. The objective of the study was assessing the effects of financial management practices on growth of startups in Nairobi County, Kenya and specifically, establish the effects of; financial stewardship strengths, capital structure and financial planning practice on growth of startups in Nairobi. The underpinning theories included the; agency theory, pecking order theory, modern portfolio theory and dynamic capability theory. Along with a positivist philosophy, a correlational research strategy was applied in the course of the research. The investigation's target demographic was the 650 startups in Nairobi County. Applying the formula suggested by Saunders Lewis and Thornhill yielded a sample population of 177 respondents for the study. The questionnaire was pretested for internal consistency adopting Cronbach's Alpha, and validity using content analysis, respectively, and was employed for gathering unstructured data. The research used a drop-and- pick mechanism to disseminate the survey. Data were quantitatively evaluated to produce narratives and the related descriptive statistics, whereas open ended questions was subjected to thematic analysis. In order to extrapolate and generalized the findings, inferential analysis (analysis of multiple regressions) was be applied. The study concludes that; financial stewardship has a significant positive effect growth of startups in Nairobi County, Kenya (β= 0.275 p=0.004), capital structure has a significant positive effect growth of startups in Nairobi County, Kenya, and financial planning practices has a significant positive effect growth of startups in Nairobi County, Kenya. The study reveals that there is a significant partial mediating effect of organisational capabilities on relationship between financial management on the growth of startups in Nairobi County and innovation capability has a significant moderating role on this relationship.