Corporate governance and financial performance of small and medium enterprises. A case of selected media houses in Kampala district

Abstract

The SME sector in Uganda has undergone tremendous growth and transformation over the past and has come out as the most active sector in the Ugandan economy. Currently, SMEs in Uganda are responsible for about 80% of employment and contributes about 40% of the GDP. However, due to the dynamic nature of the business environment, SMEs are adopting the corporate governance practices in order to maintain a competitive edge in the market. Corporate governance is the means by which an organization is directed and controlled and held accountable. In this regard, it has been noted that well governed firms largely perform better and that good corporate governance practices is of essence to any firm’s financial performance. The main objective of this study was to investigate the effect of corporate governance on financial performance of Small and Medium Enterprises in Kampala District, Uganda. Specifically, the study examined existence of the various corporate governance practices in the sampled SMEs in Kampala District such as Risk Management, Number of board meetings, Laying strategic plans, and age of the SMEs and how they affect their financial performance. The performance of SMEs was measured using Turnover, Net Profit, and Cash flows. The study adopted descriptive research design. The population included all the 57 media houses in Kampala District operating as at 30th December 2020 and a sample from each category of business was identified and used to collect information. The study made use of primary data collected using the questionnaires. Data was analyzed using a multiple linear regression model. The study found that there is a significant strong relationship between the SME‟s financial performance and corporate governance. Risk management, number of Board meetings, Laying strategic plans, and the sage of the SMEs were found to significantly affect the financial performance of SMEs in a positive direction. The study recommends that SMEs should embrace corporate governance to the fullest to achieve better financial performance. SMEs are also recommended to consider holding frequent board meeting to talk about the state of affairs of the business. SMEs are also encouraged to have strategic plans that provide a direction to the company