INFLUENCE OF RETAINED EARNINGS ON THE GROWTH OF SMALL AND MEDIUM SIZE MANUFACTURING ENTERPRISES IN RWANDA

Abstract

This study analyzed the influence of retained earnings finance structure on the growth of manufacturing SMEs in Rwanda. Mixed research design was used in collecting, analyzing and interpreting quantitative data. The target population was all the 868 SMEs registered with Rwanda Development Board as of November 2017. A sample of 273 firms was taken using stratified and random sampling techniques. Close-ended questionnaires were used in data collection. The data was analyzed using Statistical Package for Social Science. Multiple regression analysis was used to explore the relationships between retained earnings and the growth of small and medium size manufacturing enterprises in Rwanda. The findings revealed a beta coefficient of β=0.255, p=0.000 <0.05, indicating that retained earnings have a positive and significant effect on growth of manufacturing SMEs in Rwanda. Hence, a unit increase in retained earnings would result into an increase of 0.225 units in growth of SMEs. Among the recommendations, the management of the SMEs in Rwanda should consider reinvesting some of the profits into business to support growth. Similarly, governments, NGOs and lending institutions must come together to create a forum where small business are trained in cash and capital management. This will ensure that some small businesses retain their earnings to finance firm expansion and growth during times of low liquidity such as the turbulent financial times created by the COVID-19 pandemic.