The Impact of Capital Investment Decisions on the Growth of Small and Medium Enterprises: A Case Study of Nairobi City County's Central Business District, Kenya

Abstract

Small and Medium Enterprises (SMEs) play a pivotal role in Kenya’s economic growth, driving job creation and development as envisioned in Vision 2030. Despite their importance, many SMEs in Nairobi County's Central Business District face challenges due to limited capital, hindering their growth and economic potential. This study aimed to examine the effect of capital investment decisions on SME growth in this region. Specifically, it assessed the impact of expansion, replacement, modernization, contingency, and diversification investment decisions. The research was anchored on contingency theory, cash flow theory, and acceleration theory, using a descriptive research design. Out of 1,367 registered SMEs, 310 were sampled using the Yamane technique, with data collected through questionnaires. Findings indicated that expansion, replacement, modernization, and contingency decisions significantly influenced SME growth, while diversification had an insignificant impact. Overall, these factors explained 85.7% of the variance in SME growth. The study recommended that SMEs adopt strategic investment decisions and urged the Kenyan government, along with the Micro and Small Enterprises Authority, to establish venture capital exit policies and a comprehensive regulatory framework to address venture capital challenges in Kenya.

Keywords: Capital, Contingency, Diversification, Expansion, Investment decisions, Modernization, Replacement