Abstract
Small and Medium-Sized Enterprises (SMEs) play a crucial role in the economic transformation of developing nations, addressing various challenges such as unemployment, poverty, and food security. Despite their significant contribution to economic growth, these enterprises have faced considerable criticism for their perceived underperformance. Many challenges encountered by these firms, however, stem from inadequate financial management practices. While existing research has broadly acknowledged the impact of financial management practices on the performance of these firms, there remains limited empirical evidence specifically delineating which financial management practices influence the performance of SMEs. This knowledge gap calls for an empirical study of the phenomenon. This study surveyed 291 SMEs operating in the Katsina metropolis. Utilizing Structural Equation Modeling (SEM) with Smart PLS 4, the study aimed to determine the impact of implementing financial management practices on the performance of SMEs. The findings from the empirical study indicate that working capital management practices and investment appraisal practices exert a significant and positive influence on SMEs' performance. In contrast, capital structure decision was found to have an insignificant influence on the performance of SMEs. In light of these findings, the study recommends that managers of SMEs should prioritize the use of discounted cash flow techniques when evaluating investments and projects, ensuring a thorough assessment.
Keywords: Capital structure decision, Investment appraisal, Katsina state, SME performance, Working capital management.
author/Badamasi, M.; Abubakar, A. & Gbolagade, L.O.
journal/FUJPAM Vol. 3, No. 1
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