The effects of outsourcing book keeping services on the quality of financial reports among small and micro enterprises in Nairobi County, Kenya

Abstract

The study aimed to establish the effect of outsourcing bookkeeping services on the financial reporting quality of SMEs in Nairobi County, Kenya. The Transaction Cost Economics (TCE) Theory, Resource-Based View (RBV) theory and the principal-agent theory guided this research. A correlational research design was used in this study, whereby the target population (358 firms) consisted of SMEs from Nairobi County. Structurally designed questionnaires were employed and filled out by SME managers. Using descriptive and multiple regression analysis in SPSS 24, an inferential conclusion was drawn on the correlation between outsourcing bookkeeping services and financial report quality. Validity was achieved, and the questionnaire was improved following the pilot study with support from the SME managers, while reliability was established by adopting Cronbach’s alpha coefficients above 0.70. Measures were taken to observe ethical considerations by seeking prior consent from all respondents involved and keeping their responses anonymous. The study found a strong and positive correlation between outsourcing bookkeeping services and the quality of financial reporting of SMEs in Nairobi County (β = 0.668; p < 0.05). This study sought to exemplify how outsourcing bookkeeping services could be advantageous to SMEs by enhancing their financial position and operation. These findings fill a gap in the literature and are useful to SME managers, policymakers, and other stakeholders on sound financial and reporting practices. The study concluded that outsourcing bookkeeping services enhances the accuracy, timeliness, and compliance of financial reporting among SMEs. It is therefore recommended that SMEs adopt outsourcing as a strategic tool for improving the quality of their financial reports and for ensuring better financial decision-making and accountability.