Entrepreneur financial literacy, financial access, transaction costs and performance of micro enterprises in Nairobi City County, Kenya

Abstract

Entrepreneur financial literacy has been identified as one of the major competencies required for the establishment and management of microenterprises. However, empirical studies on the relationship between financial literacy and microenterprise performance have produced contradictory and inconsistent results and conclusions, hence the need for further research in this area. This study sought to establish the relationship between entrepreneur financial literacy, financial access, transaction costs and performance of microenterprises in Nairobi County, Kenya. The study was guided by five objectives namely; to establish the relationship between entrepreneur financial literacy and performance of microenterprises; to determine the relationship between entrepreneur financial literacy and financial access; to establish the influence of financial access on the relationship between financial literacy and performance of microenterprises; to assess the influence of transaction costs on the relationship between financial literacy and the performance of microenterprises and to determine the joint influence of entrepreneur financial literacy, financial access and transaction costs on the performance of microenterprises. To achieve these objectives, five research hypotheses were formulated. A cross-section design was adopted for the study. The study population comprised of all microenterprises in Nairobi County, from which a representative sample of 396 microenterprises was drawn. The main study instrument was a questionnaire which comprised of likert-type scale questions on the main variables of the study. The data was analyzed using both descriptive and inferential statistics. Hypothesis testing was done by use of regression and correlation analysis. The findings of the study indicated that entrepreneur financial literacy had a statistically significant influence on enterprise performance therefore the hypothesis that financial literacy influences enterprise performance was supported. The study also established that financial literacy had a statistically significant influence on financial access therefore the hypothesis that financial literacy influences financial access was supported. The study also revealed that intervening influence of financial access on the relationship between entrepreneur financial literacy and performance microenterprises was statistically significant. Further, the results revealed that transaction costs had a statistically significant moderating influence on the relationship between entrepreneur financial literacy and performance of microenterprises. Finally, the study established that the joint influence of entrepreneur financial literacy, financial access, and transaction cost is statistically significant. This implies that the study variables jointly predict enterprise performance. The study recognizes that the variables used for this study are not exhaustive and therefore suggests that future research should include more triangulation utilizing other intervening and moderating variables as well as using alternative measures of all the study variables. Future research should also conduct longitudinal studies that would provide definite information about cause-and-effect relationships as well as the changes in study variables over time.