Analyzing the Influence of Financial Resources on Business: The Mediating Role of Production among Small and Medium Enterprises in Sidama, Ethiopia

Gelfeto Gelassa
Assistant Professor in Marketing Management, at Hawassa University, Hawassa, Ethiopia

Chalchissa Amentie
Associate Professor in management, at Civil Service University, Addis Ababa, Ethiopia

Abstract

Small and medium enterprises are extremely significant in economic development in the country.  However, the enterprises face different challenges that affect their performance. The objective of this research was to investigate the effect of financial resources on the business performance with mediating role of production among small and medium enterprises in Sidama region, Ethiopia. To achieve the objective of the study, quantitative data were collected from 320 small and medium enterprises owners and managers using a five point Likert scale between January and June 2025. The data collection carried out using Kobo tool Box. A multi stage sampling techniques were used to reach respondents. After confirming adequacy of the data using exploratory factor analysis, the researchers employed structural equation modeling (SEM) method; specifically Covariance-based structural equation modeling (CB SEM) analysis technique was applied to test the hypothesized relationships of the study.  Additionally, the maximum likelihood method was also used. The findings of the study reveal that financial resources have a positive and significant effect on SMEs performance. Financial resources also positively influence production capability. Furthermore, production level partially mediates the relationship between financial resources and SME performance. This study contributes to existing literature by providing empirical evidences on the role of financial resources and production in enhancing SME performance within a developing economy context. The findings offer practical implications by emphasizing the need to improve access to finance and strengthen production capacity. Policy makers should design targeted financial support mechanisms, while SME managers should prioritize efficient utilization to enhance productivity and Performance.

Keywords: SMEs Performance, Financial resources, SMEs Product level, SEM