THE IMPACT OF FAMILY OWNERSHIP ON FINANCIAL PERFORMANCE OF SMEs IN KILIFI COUNTY, KENYA

Abstract

About 90% SMEs in Kilifi County Kenya collapsed within two years of their establishment where financing was attributed the cause. Interest rate caps were introduced in 2018 to tame cost of borrowing. COVID-19 pandemic in 2020 escalated SMEs’ insolvency further. Most SMEs however were family owned and this could have been a contributor to their collapse but the impact of family ownership on financial performance of SMEs particularly in Kilifi County was not known. This study evaluated the family ownership structures in general, assessed family ownership structures of SMEs and determined the impact of family ownership on the financial performance of the SMEs. Using descriptive research design, a computer generated random sample size of 384 calculated using Cochran’s sample size formula proportionately distributed and primary data that was collected using questionnaires and secondary data from financial statements, the study found family ownership had positive, negative and significant relationship with financial performance of family owned SMEs and that first generation family ownership management was superior than that of second generation family. R was 0. 382a, the R Square was 0. 146 Adjusted R Square was 0. 105 and Std. Error of the Estimate was 0. 487. ANOVA a had Sum of Squares at 8.449, the Df at 10, Mean Square was at 0. 845,F at 3.565. Increase in family founder member in top leadership caused a decrease of 0.136 in financial performance. Increase in Family Ownership share of voting rights caused a decrease of 0.632 in financial performance. Increase in size of external ownership share of voting rights caused an increase of 0.090 in financial performance. Increase in Family participation in management caused an increase of 1.838 in financial performance. Increase in tangibility caused a decrease of 0.631 in financial performance. Increase in size of assets caused an increase of 0.015 in financial performance. Increase in growth caused a decrease of 0.001 in financial performance. Every increase in years of operation caused an increase of 0.029 in financial performance. Every increase in Owners’ characteristics causes a decrease of 0.002 in financial performance. The study recommended that family ownership to be held at an optimal level to allow for fresh injection of external expertise through shareholding to improve financial performance, founder owners to prepare a succession plan and introduce heir apparent into operations long before they exit. The study recommended further research on optimum family ownership for optimum financial performance and characteristics.