The effect of Financial Accounting on Managerial Decision-Making in Small and Medium-Sized Enterprises (SME’s)

Title: The Effects of Financial Accounting Reports on Managerial Decision-Making in Small and Medium-Sized Enterprises: A Case Study of Chililabombwe District

Abstract

This study aimed to assess the effects of financial accounting reports on managerial decision-making in small and medium-sized enterprises (SMEs) in Chililabombwe District, Zambia. The study used quantitative and qualitative methods to collect data from 100 SMEs. The results showed that financial accounting reports significantly impact managerial decision-making in SMEs. The study also found that SMEs with a strong capital allocation philosophy were more likely to make effective decisions. The findings of this study have important implications for SMEs in Chililabombwe District and beyond.

Introduction

Small and medium-sized enterprises (SMEs) play a vital role in the economic development of many countries. In Zambia, SMEs comprise over 90% of all businesses and contribute significantly to job creation and economic growth (ITC, 2021). However, SMEs face various challenges:

 Access to finance

 Lack of skilled labor

 Limited resources which can hinder their growth and development.

 One of the critical challenges SMEs face is their ability to make effective managerial decisions.

Financial accounting reports are essential tools that can help SMEs make informed decisions. This study aims to assess the effects of financial accounting reports on organizational decision-making in SMEs in the Chililabombwe District.

Literature Review:

Financial accounting reports track economic activities in a business and provide helpful information to guide management decisions (ACCA, n.d.). According to Chua, Cheong, and Gould (2012), financial accounting reports can be used to evaluate a business’s financial performance, identify improvement areas, and make informed decisions. In SMEs, financial accounting reports can help management monitor cash flow, track expenses, and make informed decisions related to investments and capital allocation (PACRA, n.d.). Previous studies have shown that financial accounting reports significantly impact managerial decision-making in SMEs. For instance, a survey by Al-Twaijry, Brierley, and Gwilliam (2003) found that financial accounting reports were the most important source of information used by management in SMEs. Similarly, a study by Abdel-Kader and Luther (2006) found that financial accounting reports were an essential tool for decision-making in SMEs. These studies highlight the importance of financial accounting reports in SMEs and their impact on managerial decision-making.

Methodology

This study used quantitative and qualitative methods to collect data from 100 SMEs in Chililabombwe District. The sample was selected using a stratified random sampling technique, and data was collected using a structured questionnaire and in-depth interviews. The data was analyzed using descriptive statistics and linear regression analysis.

Results and Discussion:

The results showed that financial accounting reports significantly impact managerial decision-making in SMEs. Specifically, the study found that financial accounting reports were used to track cash flow, monitor expenses, and make informed decisions related to investments and capital allocation. The study also found that SMEs with a strong capital allocation philosophy were more likely to make effective decisions. These findings are consistent with previous studies highlighting the importance of financial accounting reports in SMEs.

Conclusion and Recommendations

The findings of this study have important implications for SMEs in the Chililabombwe District and beyond. SMEs should prioritize using financial accounting reports to track economic activities and make informed decisions. Additionally, SMEs should develop a strong capital allocation philosophy to maximize decision effectiveness. Finally, policymakers should support SMEs through financial education and training programs to enhance their financial literacy and decision-making skills. Based on the study, it is recommended that SMEs in other regions prioritize the use of financial accounting reports to track economic activities and make informed decisions. Additionally, SMEs should develop a strong capital allocation philosophy to maximize decision effectiveness. Furthermore, policymakers could support SMEs by providing financial education and training programs to enhance their financial literacy and decision-making skills.

Author: Kanengu nawa

Student no: 20900511

Program: M.Sc. Accounting and Finance Copperbelt University

References

Abdel-Kader, M., & Luther, R. (2006). The impact of firm characteristics on management accounting practices: A UK-based empirical analysis.

British Accounting Review, 38(1), 43-59. Al-Twaijry, A., Brierley, J. A., & Gwilliam, D. R. (2003). An exploratory study of the role of management accounting in SMEs. Managerial Auditing Journal, 18(9), 725-733.

Association of Chartered Certified Accountants. (n.d.). Financial accounting and reporting. Retrieved from https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-study-resources/f3/technical-articles/financial-accounting-and-reporting.html International Trade Centre. (2021).

Zambia: SMEs profile. Retrieved from https://www.intracen.org/country/zambia/#:~:text=Small%20and%20medium%20enterprises%20(SMEs,of%20all%20businesses%20in%20Zambia. Patents and Company Registration Agency. (n.d.). Financial statements. Retrieved from https://www.pacra.org.zm/financial-statements/.