Quality of financial statements, information asymmetry perceived risk, and access to finance: A study of Small and Medium Enterprises in Kampala District.

Abstract

The aim of the study was to examine the relationship between quality of financial statements, information asymmetry, perceive risk and access to finance. Specifically, the objectives of the study were; to establish the relationship between quality of financial statements and access to finance; to establish the relationship between information asymmetry and access to finance; to establish the relationship between perceived risk and access to finance and to establish the relationship between quality financial statements, information asymmetry, perceived risk and access to finance by SMEs in Kampala. The researcher adopted a blend of cross-sectional and descriptive research design and a simple random sampling. A questionnaire survey of 85 out of the 132 SMEs registered and operating in Kampala that addressed the relationship between quality of financial statements, information asymmetry, perceived risk and access to finance was used. Validity and reliability test was carried out. The response rate was 64.4% which was considered high. The results indicate a positive significant relationship between quality of financial statements and access to finance, a significant negative relationship between perceived risk and access to finance. The effect of quality of financial statements, information asymmetry and perceived risk on access to finance was examined by use of Ordinarily Least Squares (OLS) regression model. Overall, the model explains 21.4% of the variance in access to finance. The model indicates that quality of financial statements and perceived risk are significant predictors of whether the SMEs will access finance. The study recommends that SMEs’ should continuously improve on the quality of financial statements bearing the characteristics of; transparency, compliance and completeness and lower the level of uncertainty, bias, and estimation of risk to ease access to finance.