Modeling the Effect of Intellectual Capital on Financial Performance among Agro-Food Processing SMEs in Western Uganda
DOI:
https://doi.org/10.47672/ajf.2974Keywords:
Human Capital, Financial Performance, Agro-Food Processing Smes, Intellectual Capital, PLS-SEM, Western UgandaAbstract
Purpose: Human capital has become one of the most important intangible assets that help to improve competitiveness and financial results in small and medium-sized businesses (SMEs).But there is little empirical evidence on its role in agro-food processing SMEs in Uganda.The effect of human capital on financial performance of agro-food processing SMEs in western Uganda was investigated.
Methodology:The study used a quantitative cross-sectional survey design guided by the resource-based view and the knowledge-based view of the firm which involved the owner-managers and senior managers of the registered agro-food processing SMEs in Mbarara, Lyantonde, Sheema, Bushenyi, Ntungamo and Rukungiri districts.The data was gathered through the use of a structured questionnaire, and analysed through Partial Least Squares Structural Equation Modelling (PLS-SEM) in SmartPLS 4.The analysis was carried out in two steps: measurement model and structural model.The measurement model was tested using indicator reliability, internal consistency reliability, convergent validity, and discriminant validity, and subsequently the structural model was tested using a bootstrapping with 5000 resampling for hypothesis testing with the model fit indices including the Comparative Fit Index (CFI), Root Mean Square Error of Approximation (RMSEA), std root mean square residual (SRMR) and Goodness of Fit Index (GFI).
Findings:The results showed good reliability, validity and overall model fit.The results of structural model estimation showed that the human capital positively and significantly influenced the financial performance of agro food processing SMEs (β = 0.508, t-value = 7.482, p-value < .001).
Recommendations: The study concludes that investment in human capital is a strategic method to take SMEs' financial performance to a more favorable level and suggests ongoing employee development and capacity building programs to boost enterprise competitiveness and sustainability.
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Copyright (c) 2026 Tashobya C, Turyasingura. JB, Mucunguzi A, A.N. Mwazuna, Kikawa .C, Nabacwa S , Sunday. A, Nimusiima P, Rwakihembo.J
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