Do manager’s or owner’s trust matter? Effect of trust in external accountant and decision to outsource on SMEs performance in Kenya

Abstract

Small and medium-sized enterprises (SMEs) play a crucial role in driving economic growth and generating employment opportunities around the world. Despite their importance, SMEs often struggle with limited management skills, insufficient capital, and a shortage of human resources. These challenges make it difficult for them to adapt to the constantly evolving business environment. As a result, many SMEs rely on outsourcing services from external providers e.g external accountants to enhance their organizational performance. Professional accountants can provide SMEs with the essential skills and competencies needed to operate effectively by outsourcing non-core services to them. This enables SMEs to focus on their core business operations while relying on external expertise to handle other essential functions. The main objective was therefore to determine the mediating effect of outsourcing decisions on the relationship between trust in external accountants and the performance of SMEs in Kenya. The study was informed by the theory of the Agency. The study population consisted of 335 registered SMEs in Uasin Gishu County. This study adopted an explanatory research design. Multiple regression model was used to test the hypothesis. The findings showed a positive and significant effect of the trust of the owner / manager on the outsourcing decision (β1 = 0.220). The regression model showed that the outsourcing decision had a positive and significant impact on the performance of SMEs, β = 0.4358. Accounting firms should perform their work properly, inform small and medium-sized enterprises correctly, and provide best advice to managers / owners of small and medium-sized enterprises in order to build trust and meet ever-increasing demands of SMEs.