Strategic factors affecting uptake of capital market’s public equity finance option amongst smes in Kenya: perceptions

Abstract

The uptake of public equity financing among Small and Medium Enterprises (SMEs) in Kenya remains significantly low despite the growing need for alternative capital sources to support business growth and sustainability. This study was motivated by the need to evaluate the strategic factors that influence the adoption of equity financing through capital markets by SMEs. Grounded on the Agency Theory, Resource based theory, and Pecking order Theory, the study specifically assessed the role of corporate governance, technology adoption, and information disclosure in accelerating SME uptake in equity markets. A descriptive and exploratory research design was employed. The study targeted 38 SMEs comprising firms listed at the Nairobi Securities Exchange (NSE) which were classified either in the Alternative Market Segment, or the Growth Enterprise Market Segment. SMEs that were near listing or had sought interest in listing were classified under Ibuka program. Primary data were collected using structured questionnaires, while secondary data were sourced through document reviews. A census approach was used, and responses were analyzed using descriptive statistics and binary logistic regression using SPSS. Diagnostic tests including reliability analysis (Cronbach’s alpha), multicollinearity (Variance Inflation Factor), and linearity in the logit were also conducted. Descriptive results showed that SMEs generally exhibited strong corporate governance structures, moderate to high levels of technological adoption, and reasonable compliance with information disclosure practices. However, inferential analysis revealed that none of the three strategic factors significantly predicted the uptake of public equity financing. This may be attributed to regulatory barriers, inefficient capital markets, and investor skepticism toward SME transparency. The study recommends that policymakers and regulators revise listing requirements and enhance market infrastructure to accommodate SMEs more effectively. Capacity-building initiatives should also be undertaken to improve SME readiness for equity financing. Future research should consider broader geographic coverage, adopt mixed methods, and explore additional strategic and institutional variables influencing equity financing adoption.