CHAPTER ONE

INTRODUCTION

1.0 Overview
this chapter relates to the introduction of the study. It consists of the background of the study, problem statement,
objectives of the study, research questions, significance of the study, scope of the study, operational definitions of key
terms and conceptual framework of the study.

1.1 Background of the study

Investment decisions are crucial for the performance of the economy twofold, i.e., with respect to both macro and
micro perspectives. From the macro perspective, in a regular business cycle, they account for the majority of the
volatility in the Gross Domestic Product (GDP) dynamics, and their magnitude serves as a significant leading indicator
of economic performance[ CITATION Bia14 \l 1033 ].
Investments can lead to high impact new product development programs, generate flows of new technological
competencies into the firm, allow keeping abreast of the latest technical developments and enhance the likelihood of
developing products and services that are new to the market. However, investments also entail considerable costs and
require challenging organizational stability and legitimacy[ CITATION Kot14 \l 1033 ].
Investment is the present sacrifice for future benefit. Individuals, firms, and governments are all regularly in position
to decide whether or not to invest, and how to diverse among the options available. An individual might have to decide
whether to buy a stock, plant seeds, undertake a course of training; a firm may decide to purchase machinery or
construct building; and government may decide whether or not to build market. Under the heading of investment
decision, economists have addressed the problem of how to rationally choose in such situations involving a trade-off
between present and future[ CITATION Nwi13 \l 1033 ].
Small and medium-sized enterprises (SMEs)1 increasingly require information as a fundamental element for their
investment and financing decisions [ CITATION Bri20 \l 1033 ].

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1.2 Problem statement

1.3 Purpose of the study

The main purpose of the study is to investigate determinants of investment decisions on small and medium enterprises
(SMES).

1.4 Research objectives

1. To ascertain the effect of financial Constraints on investment decisions in small and medium enterprises in
Mogadishu, Somalia.
2. To determine the effect Personal Characteristics on Business Investment decision making in Mogadishu,
Somalia.
3. To find out the influence size of Business on Investment Decision of small and medium enterprises in
Mogadishu, Somalia.

1.5 Research questions

1. What is the effect of financial Constraints on Investment Decision of small and medium enterprises in
Mogadishu, Somalia?
2. Is there any effect Personal Characteristics on Business Investment decision making in Mogadishu, Somalia?
3. How can influence size of Business on Investment Decision of small and medium enterprises in Mogadishu,
Somalia?

1.6 THE SCOPE OF THE STUDY

1.6.1 Time scope

This study will be conducted between February to June, 2021.
1.6.2 Geographical scope
The study will be conducted in Mogadishu, Somalia.
1.6.3 Content scope
The study will focus on the determinants of investment decisions on small and medium enterprises. The study will
specifically focus on financial Constraints, Personal Characteristics, & size of Business.

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1.7 Significance of the study

This study gives information when investors/managers/owners make investment decisions among small and medium
enterprises (SMEs). Also, this study presents some determinants that determine investment decisions in small and
medium enterprises. It contributes to the body of knowledge

about determinants of investment decisions on small and medium enterprises. The findings may also contribute to the
existing information/literature that may be used academicians who may wish to carry out father studies on a related
subject matter.

1.8 Operational definitions of variables

Determinants: factors which decisively affects the nature or outcome of something.

Investment decisions: are of special interest not only to policy makers and researchers, but also to firm managers and
owners[ CITATION Per15 \l 1033 ]. Investment decisions has been dealt with in the literature for long time, the subject
received renewed interest with the work by Fazzari, Hubbard and Petersen (1988). Investment decisions are complex
and not as frequent as other firm decisions, precluding the formation of rules-of-thumb. The literature stresses the role
of information asymmetry in the credit market (Stiglitz and Weiss, 1981), for lending institutions have difficulties in
differentiating among borrowers[ CITATION Azz061 \l 1033 ].

SMEs: are generally at a relative disadvantage due to economies of scale, are relatively isolated and geographically
scattered. Small SMEs often employ family and/or friends, seasonal, casual or part-time non-unionized
workers[ CITATION Meg07 \l 1033 ].

A financial constraint:

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 1.9 Conceptual framework

Dependent Variable
Independent Variable

financial constraint

Personal characteristic INVESTMENT DECISIONS

Size of Business

Source: primary data (2019)

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 CHAPTER TWO

LITERATURE REVIEW
2.0 Introduction

This chapter presents different literatures related to determinants of investment decisions in small and medium
enterprises. The literature will specifically focus on financial Constraints, Personal Characteristics, and size of
Business. These literatures have been retrieved from various books, journals articles and studies related to the same
problem at hand.

2.1 the effect of financial Constraints on Investment Decision of small and medium enterprises

Most previous research on Nancie constraints is based on Nancie statement data filed by U.S. public companies. The
existing papers typically investigate the impact of constraints on investment policy, examining whether investment at
constrained Arms is tied more closely to cash áows.1 With the exception of Kaplan and Zingales (1997), who look at
CEOs statements about their Arsaces to credit, papers in this literature customarily proxy for Nancie constraint with
characteristics like small Arm size, nondividing paying status, or poor credit ratings, all of which are gathered from
standard archival sources. One distinguishing feature of our analysis is that we directly ask managers whether their
Örms are Önancially constrained. In particular, preserving the managers anonymity, we inquire whether their
companies operations have been elected by the cost or availability of credit. Our sample includes both public and
private companies from around the globe[ CITATION Cam10 \l 1033 ].

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 CHAPTER THREE

METHODOLOGY

3.0 Introduction

This chapter presents the research methodology the research design, population, sample size,

sampling procedure, research instruments, and data gathering procedure, reliability and validity

of the instrument, data analysis, limitations and ethical considerations of the study.

3.1 RESEARCH DESIGN

The research design is one of the most important steps in the research process. Most decisions on

how, when and where the research was implemented is made during this step. The study was

employed and utilized the descriptive research design. A descriptive research is a process of

collecting and analyzing data in order to answer questions regarding the current status of the

subjects in the study. This study employed utilized quantitative methodology and questionnaire

as research instrument. The questionnaire is designed in order to obtain enough information

about the research objectives. The researchers also used primary data.

The researchers used this approach in order to describe and to investigate determinants of

investment decisions in small and medium enterprises in Mogadishu, Somalia using information

gained from the questionnaire.

3.2 RESEARCH POPULATION

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 Population is the group of individuals restricted to a geographical region (neighborhood, city,

state, country, continent etc.), or certain institutions (hospitals, schools, health centers etc.), that

is, a set of individuals that have at least one characteristic in common (Martínez-Mesa J, 2014).

Polit and Hungler (1999) population is a complete set of individuals, cases or objects with some

common observable characteristics, population refer to an aggregate or totality of all individual

or objects, or members that conform to a set of specifications. Population divides two types:

target population and accessible population.

Accessible population is the population in a research to which the researchers can apply their

conclusion. This population is a subject of the target population and is also known as the study

population. (Mohamed, 2010).

Target population refers to the entire group of individual or objects to which researchers

interested in generalizing the conclusion. The target population usually has varying

characteristics (Horton, n. j. 2008). The target population of the study is unknown because there

is no number registered of Small and Medium Enterprises in Mogadishu as a whole, and especially

in Bakaaro Market, so the researchers of this study used criteria to select target population in the

study.This research conducted small and medium enterprises in Bakaaro Market especially in

Electronics SMEs was the target population. The respondents of the study were branch managers,

owners and accountants of SMEs in Bakaaro Market especially in Electronics because they have

the relevant information and can answer the research questions of this study.

As researchers set up some criteria that distinguish SMEs in Bakaaro Market special some

Electronics in SMEs in the market. As researchers created the criteria that identify which business

are small and medium enterprise so if business is met the following criteria, researchers recognized

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 small and medium enterprise.

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 Table 3.2 population criteria

Enterprise Capital No. of Employee Branches

Small ≤$7,000 1-3 employees 1 only

Medium >$15,000 5-20 employees >1

Source: primary data (2019)

3.0.1 Sample Size

Sample is a subset of a population that is used to represent the entire group as a whole (Cherry,

2016). Sampling is the process by which a relatively small number of individuals or measures of

individuals, objects or events is chosen and analyzed in order to find out something about the entire

population from which it was chosen(Salaria, 2012).

A sample is part of the target (accessible) population that was procedurally select to present it.

Science the exact number of the target population of this study is unknown, the sample size of

the study cannot be statistically driven. Therefore, researchers adopted the sample size of similar

study in Kenya which is 133 participants (Amuko, 2015).

The sample consisting 133 participants selected from some small and medium enterprises in

Mogadishu Somalia specially Bakaaro Market in electronic SMEs. These participants chased

according to the possibility of getting accurate information.

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 3.1.1 Sampling Procedure

The sampling procedure of this study used non probability sampling procedure particularly;

Purposive sampling used to select the sample. Purposive sampling is a method of sampling

where the researcher intentionally chooses who to include in the study based on their ability to

provide necessary data (Onen and oso, 2008).

The rationale for choosing this approach is that respondents who are suitable to participate in this

study are purposively chosen as target respondents of the study. Also the researchers saw the

justification side that they select typical and useful respondents. Purposive sampling saved time

and money for the researchers.

3.2 RESEARCH INSTRUMENT

The researchers used questionnaire as the tool for collecting data from different manufactures.

Questionnaire is “a technique of data collection in which each person will ask to respond to the

same set of questions in a predetermined order” (Sounders ,2009). The reason for selection of

this tool is first questionnaire is in-expensive, second questionnaire does not require interviewer

time and third it allows respondents to maintain their anonymity and reconsider their responses.

The questionnaires used in this study developed by researchers and approved by supervisor about

determinants of investment decisions in SMEs in Mogadishu-Somalia. The Questionnaire would

be used in view of the fact that the study is concern with variables that cannot be observed such

as opinions and feelings. This study used questionnaire instrument as main tool for collection

data, which used in quantitative research and questionnaire developed from (Aneta and

Miroslav , 2017). Questionnaire may define as technique of data collection in which each person

is ask to respond to the same set of questions in develop order. Questionnaire is a formalize set of
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 questions for obtaining information from respondents Guidelines for questionnaire construction

are provide at each stage of the process, besides on research objectives of the study. The

selection of this tool has been guide by the nature of data to be collected, the time available as

well as by the objectives of the study and questionnaire techniques was adoptedin collecting

primary data as it provides and efficient way of collecting responses from a large sample size.

3.3.1 Validity of the Instrument

Validity means that the individual scores of an instrument are meaningful and allow the

researcher to draw good conclusions from the sample population being study (M. M., 2015). The

validity of an instrument is assessed by confirming the instrument’s capability to measure what it

is intended to measure. Four types of validity are: content validity, face validity, construct

validity, and criterion validity ( A. A., 2012). As suggested Amin (2005) the instrument item

with validity Cronbach Alpha Coefficient at least 0.70 or 70% are accept as valid in research.

So the researchers enhance the quality of the study, this research would make sure any effort to

reach validity of at least 0.70. The researchers made calculate the Content Validity Index (CVI)

self-administered questionnaire was use throughout the research to ascertain the compatibility.

This research attempted to meet the globally recognized standards of validity considering the

great author‟s definition of “Validity is the quality of the test doing what is designed to do.

3.3.2 Reliability of the Instrument

According Joppe (2000) define reliability as the extent to which result are consistent over time

an accurate representation of total population under study id referred to as reliability and if the

result of a study can be produced under a similar methodology, then the research instrument is

considered reliable. While validity determined whether the research truly measures that which it

was intended to measure or how truthful the research result are. In other words, research
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 generally determinate validity by asking a series of questions, and often look for the answers in

the research of others. The reliability of the research instruments was established using the SPSS

Cronbach Alpha Coefficient test. Specifically, this test was covering the research items

systematically arranged in the questionnaire. All the variables reflect in these grouped research

items of the questionnaire guide was particularly teste using the Cronbach’s Alpha Coefficient

(CAC). As a result, the SPSS reliability test would yield a CAC output that reveals the

instruments‟ reliability. According to Reynaldo (1999), a research instrument is reliable within

the range of 0.7- 1.0. This research was fulfilling the requirement because its Cronbach‟s Alpha

Coefficient (CAC) is 0.790.

3.2.3Tableof Reliability Analyses

Reliability Statistics
Cronbach's Alpha N of Items
.790 21
Source: primary data, (2019)

Reliability Test: table 3.2.3: Table below shows the results of reliability coefficients. All

variables achieved an acceptable at all scores were greater than the rule of thumb (<.70) and very

strongly reliable. The reliability estimates indicated that, each test item had an alpha (ɑ) value

greater than the mostly recommended magnitude of 0.70 according to Pallant, (2007).

3.3 DATA GATHERING PROCEDURES

After approved the proposal the researcher was requested student affair office a letter that

information the research is investigating academic research. After receiving an introductory letter

from the office, the researchers were requested member of population to fill questionnaire with

un-bias and honestly.

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 Finally, the researchers distribute questionnaires to branch managers of SMEs in some

Electronics then; researchers were analysis data by using statistical package for social sciences,

(SPPS) version 20.0.

3.5 DATA ANALYSIS

Data analysis entails examining the data collected and making deductions and inferences (Walid,

2015). This study was used quantitative approach and dataanalyzed by using statistical package

for the social science (SPSS) version 20.0. The data collected for the purpose of the study

developed and coded for completeness and accuracy. To examine the stated objective,

Descriptive statistics was use ofmeasure of central tendency such as percentages, mean and

standard deviation(sounders et al., 2009) to utilize the objectives. In the Questionnaire, each

Respondentselected one to four scale options where1: Disagree, 2=strongly disagree, 3= Agree,

4=Strongly Agree. The following table represents the mean ranges and their interpretation.

Table 3.5mean index

Mean Range Respondents Mode Interpretation

3.41 up to 4.0 Strongly Agree Very high

2.61 up to 3.40 Agree High

1.81 up to 2.60 Disagree Low

1.00 up to 1.80 Strongly disagree Very low

Source: primary data, (2019)

3.6 ETHICAL CONSIDERATIONS

In this study the researcher considered the ethical issues throughout the research project, and

waskept the openness, privacy and confidentiality of the respondent. Any anonymity and

confidentiality of the secret information give high priority and this study strictly, only academic

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 purpose and that utmost confidentiality would be observe. More over

the researchers respect to maintain individual self -confidence. This

research was fully conducted ethically and all copyright was observed

and where permission is required to reproduce materials was sought.

Because of the confidentiality, privacy and informed Consent may be

ethical problem of the study (Onen andOso,2008 ). In this study the

researchers were used committed to keep the privacy of the participants

through undisclosed their information. In addition the team requested

the academic department a certificate of confidentiality so as to get

confidentiality and the researcher was provided the participants with

information about the purpose of the research and the expected duration

of participation and the procedure to be fallowed.

3.7 LIMITATIONS OF THE STUDY

Since there are no available secondary data about small and medium

enterprises in Somalia, most the material in this research raw data

collected from the market. Some of limitation of this study includes:

 Lack of enough resources which enables researcher to carry out the

study .To get information relating to the research is very complex

because mentioning firms.

 policy to the public is not more tractable in Somali firms

 The general security situation does not

allow for collecting of data The

researchers participate to solve those

limitations by following:

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  To make government national library (a great place for research paper sources).

 To find the top few secondary resources cited in the article.

 To make government policy that enforce to the firms to present transparency

 To establish government good institutional security

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