DIGITAL MANAGEMENT ACCOUNTING PRACTICES AND FINANCIAL PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN KAKAMEGA COUNTY, KENYA

Purpose of the Study: This study examined the relationship between digital management accounting practices (DMAPs) and the financial performance of small and medium-sized enterprises (SMEs) in Kakamega County, Kenya. Problem Statement: Although digital transaction systems are increasingly adopted by businesses, the digitisation of transactions does not necessarily imply that SMEs effectively utilise digital information for budgeting, costing, pricing, and timely management reporting. Consequently, context-specific evidence on the influence of these practices on SME financial performance remains limited. Methodology: The study employed a quantitative cross-sectional survey design. The target population comprised 2,370 active licensed SMEs, from which a sample of 342 respondents was determined using Yamane’s formula and selected through stratified random sampling. Data were collected using structured questionnaires and analysed using descriptive statistics, Pearson’s correlation analysis, and multiple linear regression. Results: The findings revealed significant positive relationships between financial performance and digital budgeting and forecasting (r = .377, p < .001), automated cost accounting and pricing (r = .378, p < .001), and real-time digital financial reporting (r = .328, p < .001). The regression model was statistically significant, F(3, 338) = 40.31, p < .001, explaining 26.4% of the variance in financial performance (R² = .264; Adjusted R² = .257). Furthermore, all predictor variables had positive and statistically significant coefficients. Conclusion: The study concludes that the adoption of digital tools for planning, cost management, and financial reporting is positively associated with improved financial performance among SMEs. Policy Recommendations: SMEs and business support agencies should promote the adoption of affordable digital management accounting tools and complement their use with practical training in budgeting, costing, data quality management, and financial analysis. Keywords: Digital Management, Accounting Practices, Financial Performance, Small and Medium Enterprises, Kakamega County