DOI: https://doi.org/10.36347/sjebm.2025.v12i04.004

Pages: 105-113

Investment decision-making is essential for the effective allocation of resources, especially for small and medium enterprises in developing economies such as Kenya, where these enterprises are pivotal to economic development. Although theoretical frameworks such as current portfolio theory highlight rational decision-making, empirical evidence indicates that behavioral biases considerably affect small and medium enterprises investment decisions. This study examined the influence of availability bias on investment decisions mediated by financial literacy among small and medium enterprises in Nairobi County. Using a positivist research philosophy and survey research design, data was collected from 376 proprietors and managers of small and medium enterprises from trade and service sectors. Descriptive and inferential statistics, including regression analysis and the PROCESS macro to examine mediation effects were used to analyze data. Pearson correlation analysis revealed robust significant correlations: availability bias and financial literacy (r = 0.978), availability bias and investment decisions (r = 0.964), and financial literacy and investment decisions (r = 0.981). Further, regression analysis indicated that availability bias strongly influenced financial literacy (coeff = 0.8041) and investment decisions (coeff = 0.1000), while financial literacy also exerted a significant influence on investment decisions (coeff = 0.8684). The financial literacy model accounted for 95.56% of the variation (R² = 0.9556), whereas the investment decisions model accounted for 96.23% (R² = 0.9623). The indirect effect of availability bias on investment decisions mediated by financial literacy was significant (r = 0.6983). The study concludes that availability bias and financial literacy significantly influence SME investment decisions in Nairobi County, with financial literacy mediating this relationship. Small and medium enterprises should adopt structured decision-making framewo