Does Transactional Leadership Style Moderate the Relationship Between Financial Literacy and Financial Growth? Insight and Impact in Micro, Small and Medium Enterprises in Kenya

Main Article Content

Wilbon Kiptoo Sigei https://orcid.org/0009-0004-1281-7699
Stephen Chelogoi https://orcid.org/0000-0003-2146-7745
Jane Sang https://orcid.org/0009-0004-2496-1487

Keywords

Financial literacy, transactional leadership style, financial growth, Micro, Small and Medium Enterprises, South Rift

Abstract

MSMEs boost global economic growth, poverty reduction, and job creation. Kenyan MSMEs face credit, financial literacy, regulatory compliance expenses, and leadership issues despite government involvement. The general purpose of this study was to establish moderating effect of transactional leadership style on financial determinants and financial growth of MSMEs in South-Rift Region, Kenya. The study specific objectives were; to examine the effect of access to credit, financial literacy and regulatory compliance costs on the financial growth of MSMEs. The study was guided by Resource Dependency and Transaction Cost Theory. Explanatory research design was adopted and the unit of observation were the registered MSMEs. Stratified, proportional, and simple random sampling techniques were used to select 394 respondents from a target population of 25,343. Primary data was collected using close ended questionnaires. A pilot study was conducted in Kisii County using 10% of the sample size. Validity of the instruments was carried out using Factor analysis and Correlation, while reliability was tested using Cronbach's Alpha.  Data analysis involved use of both descriptive and inferential statistics. Inferential statistics used correlation and hierarchical moderating regression analysis, whereas descriptive used frequency, mean, standard deviation, and percentages. The study results indicated that the association between financial literacy and financial growth was positive and significant (r =0.324, p = 0.01). The association between transactional leadership style and financial growth was positive and statistically significant (r = 0.618, p = 0.01). A statistically significant effect of financial literacy on the financial growth of MSMEs (β = 0.131, ρ<0.05) was established. Consequently, it can be inferred that financial literacy has an effect on the financial growth of MSMEs. The results further indicate that the interaction effect between financial literacy, transactional leadership and financial growth in MSMEs was positively and significantly influenced by the interaction effect of transactional leadership (β = 0.212, ρ<0.05). The study concludes that transactional leadership moderates the relationship between financial literacy and the financial growth of MSMEs. The study findings contribute to extant literature by demonstrating that financial literacy and transactional leadership jointly influence the growth of MSMEs, a combined effect not previously documented. Financial literacy and leadership training are especially recommended for MSME owners and managers to boost sustainable growth. Financial literacy and leadership frameworks, which enable MSMEs' growth, should be promoted by government and financial sector policies.

Abstract 34 | PDF Downloads 24

References

Achtenhagen, L., Naldi, L., & Melin, L. (2010). “Business growth”—Do practitioners and scholars really talk about the same thing? Entrepreneurship theory and practice, 34(2), 289-316. https://doi.org/https://doi.org/10.1111/j.1540-6520.2010.00376.x

Ajide, F. M., & Soyemi, K. A. (2022). Oil rent, entrepreneurial start-ups, and institutional quality: Insights from African oil-rich countries. Entrepreneurial Business and Economics Review, 10(1), 35-49. https://doi.org/10.15678/EBER.2022.100103

Amoah, S. K., & Amoah, A. K. (2018). The role of small and medium enterprises (SMEs) to employment in Ghana. International Journal of Business and Economics Research, 7(5), 151-157. https://doi.org/doi: 10.11648/j.ijber.20180705.14

Anshika, A., & Singla, A. (2022). Financial literacy of entrepreneurs: a systematic review. Managerial Finance, 48(9/10), 1352-1371. https://doi.org/https://doi.org/10.1108/MF-06-2021-0260

Aroyeun, T., Adefulu, & Asikhia. (2019). Effect of entrepreneurial orientation on performance of selected small and medium scale enterprises in Ogun State Nigeria. International Journal of Business and Management Invention, 8(1),
16-27.

Asare, F. (2019). Consumer Behaviour towards Pension Scheme Acquisition in the Informal Sector in Ghana University of Ghana].

Asiimwe, J. B., Kavoo-Linge, T., & Sikalieh, D. (2016). The relationship between transactional leadership style and SMEs growth in the top 100 SMEs in Kenya. International Journal of Business and Social Science, 7(7), 74-81.

Ayalu, G., Abbay, A. G., & Azadi, H. (2023). The role of micro-and small-scale enterprises in enhancing sustainable community livelihood: Tigray, Ethiopia. Environment, Development and Sustainability, 25(8), 7561-7584. https://
doi.org/https://doi.org/10.1007/s10668-022-02359-7

Azegele, M., Okeyo, W., & Nyambegera, S. (2021). Moderating Effect of Leadership Style on the Relationship Between Corporate Governance and Performance of Insurance Companies in Kenya. African Journal of Emerging Issues, 3(7), 51-66. https://doi.org/https:?//ajoeijournals.org

Aziz, N. I. M., & Kassim, S. (2020). Does Financial Literacy Really Matter for Malaysians? A Review. literacy, 2(2), 13-20.
Baron, R. M., & Kenny, D. A. (1986). The moderator–mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of personality and social psychology, 51(6), 1173.

Benedict, A., Gitongab, J. K., Agyemanc, A. S., & Kyeid, B. T. (2021). Financial determinants of SMEs performance. Evidence from Kenya leather industry. https://doi.org/https://doi.org/10.26784/sbir.v5i2.389

Buchdadi, A. D., Sholeha, A., & Ahmad, G. N. (2020). The influence of financial literacy on SMEs performance through access to finance and financial risk attitude as mediation variables. Academy of Accounting and Financial Studies
Journal, 24(5), 1-15. https://doi.org/htpp//iod.1528-2635-24-5-595

Byars, L. L. (1991). Strategic management: formulation and implementation: concepts and cases.

Celtekligil, K. (2020). Resource dependence theory. Strategic Outlook for Innovative Work Behaviours: Interdisciplinary and Multidimensional Perspectives, 131-148.

Civelek, M., Rahman, A., & Kozubikova, L. (2016). Entrepreneurial orientation in the segment of Micro-Enterprises: evidence from Czech Republic.

Coad, A. (2018). Firm age: a survey. Journal of Evolutionary Economics, 28, 13-43.

Coad, A., Holm, J. R., Krafft, J., & Quatraro, F. (2018). Firm age and performance. Journal of Evolutionary Economics, 28, 1-11.

Cronbach, L. J. (1951). Coefficient alpha and the internal structure of tests. psychometrika, 16(3), 297-334.

Cuypers, I. R., Hennart, J.-F., Silverman, B. S., & Ertug, G. (2021). Transaction cost theory: Past progress, current challenges, and suggestions for the future. Academy of Management Annals, 15(1), 111-150.

Delmar, F., & Wiklund, J. (2008). The effect of small business managers’ growth motivation on firm growth: A longitudinal study. Entrepreneurship theory and practice, 32(3), 437-457.

DeMiguel, V., Martin-Utrera, A., Nogales, F. J., & Uppal, R. (2020). A transaction-cost perspective on the multitude of firm characteristics. The Review of Financial Studies, 33(5), 2180-2222.

Diabate, A., Allate, B. M., Wei, D., & Yu, L. (2019). Do firm and entrepreneur characteristics play a role in SMEs’ sustainable growth in a middle-income economy like Côte d’Ivoire? Sustainability, 11(6), 1557.

Dziallas, M., & Blind, K. (2019). Innovation indicators throughout the innovation process: An extensive literature analysis. Technovation, 80, 3-29.

Eniola, A. A., & Entebang, H. (2017). SME managers and financial literacy. Global Business Review, 18(3), 559-576.

Ernest, B.-T., Danie, S., & Nicholas, A. (2022). Determinants of tax compliance costs of small and medium enterprises in emerging economies: Evidence from Ghana. Social Sciences & Humanities Open, 6(1), 100343.

Frimpong, S. E., Agyapong, G., & Agyapong, D. (2022). Financial literacy, access to digital finance and performance of SMEs: Evidence From Central region of Ghana. Cogent Economics & Finance, 10(1), 2121356.

García-Pérez-de-Lema, D., Ruiz-Palomo, D., & Diéguez-Soto, J. (2021). Analysing the roles of CEO's financial literacy and financial constraints on Spanish SMEs technological innovation. Technology in Society, 64, 101519.

George, D., & Mallery, P. (2018). Reliability analysis. In IBM SPSS statistics 25 step by step (pp. 249-260). Routledge.

Ghosh, B. N. (2019). Dependency theory revisited. Routledge.

Gonzales, E., Hommes, M., & Mirmulstein, M. (2014). MSME Country Indicators 2014. Towards a Better Understanding of Micro, Small, and Medium Enterprises. Analysis note, Washington, DC, Corporación Financiera Internacional (CFI),
diciembre.

Harvie, C. (2019). Micro-, small-and medium-sized enterprises (MSMEs): challenges, opportunities and sustainability in East Asia. Trade logistics in landlocked and resource cursed Asian countries, 155-174.

Haryadi, B., Angraini, M. S., Hamat, Z., & Latifah, L. (2023). The Effect of Financial Literacy and Financial Behavior on the Performance of MSMEs on Madura Island. Journal of International Conference Proceedings,

Hererra, J. J. D., Warokka, A., & Aqmar, A. Z. (2023). Financial Literacy and MSME Performance: Mediation and Moderation Analysis. Journal of Sustainable Economics, 1(2), 65-76.

Hiebl, M. R., & Richter, J. F. (2018). Response rates in management accounting survey research. Journal of Management Accounting Research, 30(2), 59-79.

Hossain, M. M. (2020). Financial resources, financial literacy and small firm growth: Does private organizations support matter? Journal of Small Business Strategy, 30(2), 35-58.

Hossain, M. M., Ibrahim, Y., & Uddin, M. M. (2023). Finance, financial literacy and small firm financial growth in Bangladesh: The effectiveness of government support. Journal of Small Business & Entrepreneurship, 35(3), 336-361.

Jony, M. T. I., Alam, M. J., Amin, M. R., & Jahangir, M. (2019). The impact of autocratic, democratic and laissez-faire leadership styles on the success of the organization: A study on the different popular restaurants of Mymensingh,
Bangladesh. Canadian Journal of Business and Information Studies, 1(6), 28-38.

Kabiru, G. K., & Bula, H. (2020). Influence of Transactional Leadership Style on Employee Performance at Selected Commercial Banks in Nairobi City County, Kenya. International Journal of Research and Innovation in Social Science (IJRISS), iv (ix), 520-524.

Kanayo, O., Agholor, I., & Olamide, E. (2021). Impact of sustainable entrepreneurship indicators on SMEs business success in South Africa. Academy of Entrepreneurship Journal, 27(4), 1-17.

Kanini, K. S., Bula, H. O., & Muathe, S. M. (2022). Social Capital and Performance of Manufacturing MSMEs in Kenya. developing economies, 7(1).

Kidali, F. K. (2020). Access to Credit and Growth of Micro, Small and Medium-scale Enterprises in Kenya University of Nairobi].

Kimathi, D. K. (2020). Effect of Entrepreneurial Marketing on the Performance of Micro, Small and Medium Enterprises in Kenya JKUAT-COHRED].

Kiprotich, E. (2014). The influence of social capital on the growth of SMEs in Nairobi county, Kenya University of Nairobi].

Kiveu, M. N., Namusonge, M., & Muathe, S. (2019). Effect of innovation on firm competitiveness: the case of manufacturing SMEs in Nairobi County, Kenya. International Journal of Business Innovation and Research, 18(3), 307-327.

Kobayashi, M. (2023). Interdependence in buyer–supplier relationships Definitions and measurement. Annals of Business Administrative Science, 22(6), 107-120.

Kristanti, F. T., Rahayu, S., & Isynuwardhana, D. (2019). The survival of small and medium business. Polish journal of management studies, 20(2), 311-321.

Lee, S., Upneja, A., Özdemir, Ö., & Sun, K.-A. (2014). A synergy effect of internationalization and firm size on performance: US hotel industry. International Journal of Contemporary Hospitality Management.

Lim, V. K. (2003). An empirical study of older workers’ attitudes towards the retirement experience. Employee Relations.

Linge, T. K., Sikalieh, D., & Asiimwe, J. B. (2016). The relationship between laissez-faire leadership style and SMEs growth in the Top 100 SMEs in Kenya.

Liu, B., Wang, J., Chan, K. C., & Fung, A. (2021). The impact of entrepreneurs’s financial literacy on innovation within small and medium-sized enterprises. International Small Business Journal, 39(3), 228-246.

Lusardi, A. (2019). Financial literacy and the need for financial education: evidence and implications. Swiss Journal of Economics and Statistics, 155(1), 1-8.

Mahmutaj, L. R., & Krasniqi, B. (2020). Innovation types and sales growth in small firms evidence from Kosovo. The South East European Journal of Economics and Business, 15(1), 27-43.

Mansaray, H. E. (2019). The role of leadership style in organisational change management: a literature review. Journal of Human Resource Management, 7(1), 18-31.

Motta, V. (2020). Lack of access to external finance and SME labor productivity: does project quality matter? Small Business Economics, 54(1), 119-134.

Musau, S. M., Muathe, S., & Mwangi, L. W. (2022). Financial literacy and consumer protection: A road map to digital financial access by SMEs in Kenya. The Journal of Entrepreneurial Finance (JEF), 24(2), 1-25.

Mwakajila, H. M., & Nyello, R. M. (2021). Leadership Styles, Firm Characteristics and Business Financial Performance of Small and Medium Enterprises (SMEs) in Tanzania. Open Journal of Business and Management, 9(4), 1696-1713.

Njanike, K. (2019). The factors influencing SMEs growth in Africa: A case of SMEs in Zimbabwe. In Regional development in Africa. IntechOpen.

Nungky Viana, F., Alifian, N., & Sampir Andrean, S. (2020). Effect of transformational and transactional leadership on SMEs in Indonesia. Problems and Perspectives in Management.

Nurlianti, N., & Qhodriyah, L. (2022). The Effect of Financial Literacy and Financial Inclusion on The Performance of MSMES In Bangkalan District. International Conference On Economics Business Management And Accounting (ICOEMA),

Nursini, N. (2020). Micro, small, and medium enterprises (MSMEs) and poverty reduction: empirical evidence from Indonesia. Development Studies Research, 7(1), 153-166.

OECD. (2017). Strong. Trends in SME Performance and Business Condition. Организация экономического сотрудничества и развития URL: https://www. oecd. org/industry/small-medium-strong-trends-in-sme-performance-and-businessconditions-9789264275683-en. htm (дата обращения: 08.07. 2022).

Okeke, V. I. (2019). Leadership Style and SMEs Sustainability in Nigeria: A Multiple Case Study Walden University].

Papadopoulos, V., Giovanis, D. G., Papadopoulos, V., & Giovanis, D. G. (2018). Reliability analysis. Stochastic Finite Element Methods: An Introduction, 71-98.

Park, H. (2021). Reliability using Cronbach alpha in sample survey. The Korean Journal of Applied Statistics, 34(1), 1-8.

Putra, Y. M. (2019). Analysis of factors affecting the interests of SMEs using accounting applications. Journal of Economics and Business, 2(3).

Rahman, M. M., Muhammad, N., & Dana, L.-P. (2020). A comparative study of SME policies: Bangladesh and Pakistan. Journal of Enterprising Culture, 28(02), 93-120.

Rahman, S. T., & Kabir, A. (2019). Factors influencing location choice and cluster pattern of manufacturing small and
medium enterprises in cities: evidence from Khulna City of Bangladesh. Journal of Global Entrepreneurship Research, 9(1), 61.

Rashidah, R., & Ali, F. H. M. (2006). Board, audit committee, culture and earnings management: Malaysian evidence. Managerial auditing journal.

Rindfleisch, A. (2020). Transaction cost theory: past, present and future. AMS Review, 10(1), 85-97.

Saber, A. (2020). The impact of financial literacy on household wealth in the Kingdom of Saudi Arabia Victoria University].

Samson, A. T., & Ilesanmi, O. A. (2019). The relationship between transactional leadership, transformational leadership and performance of SMEs in Nigeria. Noble International Journal of Business and Management Research, 3(4), 73-85.

Sayyadi, M. (2019). How effective leadership of knowledge management impacts organizational performance. Business Information Review, 36(1), 30-38.

Schindler, P. S. (2022). Business research method. McGraw-Hill/Irwin.

Sharma, S. (2021). Entrepreneurship development. PHI Learning Pvt. Ltd.

Shibia, A. G., & Barako, D. G. (2017). Determinants of micro and small enterprises growth in Kenya. Journal of Small Business and Enterprise Development, 24(1), 105-118.

Silva, G. M., Gomes, P. J., Carvalho, H., & Geraldes, V. (2021). Sustainable development in small and medium enterprises: The role of entrepreneurial orientation in supply chain management. Business Strategy and the Environment, 30(8), 3804-3820.

Simba, A., & Thai, M. T. T. (2019). Advancing entrepreneurial leadership as a practice in MSME management and development. Journal of Small Business Management, 57, 397-416.

Taouab, O., & Issor, Z. (2019). Firm performance: Definition and measurement models. European Scientific Journal,
15(1), 93-106.

Teka, B. M. (2022). Determinants of the sustainability and growth of micro and small enterprises (MSEs) in Ethiopia: literature review. Journal of Innovation and Entrepreneurship, 11(1), 58.

Tekola, H., & Gidey, Y. (2019). Contributions of micro, small and medium enterprises (MSMEs) to income generation, employment and GDP: Case study Ethiopia. Journal of Sustainable Development, 12(3), 46-81.

Tong, L. Z., Wang, J., & Pu, Z. (2022). Sustainable supplier selection for SMEs based on an extended PROMETHEE Ⅱ approach. Journal of Cleaner Production, 330, 129830.

Uddenberg, A. (2015). Growth in established SMEs: Exploring the innovative and ambitious firm Linköping University Electronic Press].

Urbano, D., Aparicio, S., & Audretsch, D. (2019). Twenty-five years of research on institutions, entrepreneurship, and economic growth: what has been learned? Small Business Economics, 53, 21-49.

Wadho, W., & Chaudhry, A. (2018). Innovation and firm performance in developing countries: The case of Pakistani textile and apparel manufacturers. Research Policy, 47(7), 1283-1294.

Wiklund, J. (1999). The sustainability of the entrepreneurial orientation—performance relationship. Entrepreneurship theory and practice, 24(1), 37-48.

Winarno, A., & Wijijayanti, T. (2018). Does entrepreneurial literacy correlate to the small-medium enterprises performance in Batu East Java? Academy of Entrepreneurship Journal, 24(1), 1-13.

Xiao, J. J., & Porto, N. (2017). Financial education and financial satisfaction: Financial literacy, behavior, and capability as mediators. International Journal of Bank Marketing, 35(5), 805-817.

Yakob, S., Yakob, R., Bam, H.-S., & Rusli, R. Z. A. (2021). Financial literacy and financial performance of small and medium-sized enterprises. The South East Asian Journal of Management, 15(1), 5.

Yeboah, M. A. (2021). Determinants of SME growth: An empirical perspective of SMEs in the Cape Coast Metropolis, Ghana. The Journal of Business in Developing Areas & Nations, 14, 1-31.

Yoshino, N., & Taghizadeh-Hesary, F. (2018). The role of SMEs in Asia and their difficulties in accessing finance.

Most read articles by the same author(s)