How Does Financial Literacy Promote Sustainability in SMEs? A Developing Country Perspective

Role of the knowledge-based resources in promoting sustainability in small and medium enterprises (SMEs) is currently a topic of debate. Financial literacy has been identified as a vital knowledge resource for financial decision making, but insufficient attention has been given to how SMEs’ financia...

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Bibliographic Details
Published in:Sustainability 2019-05, Vol.11 (10), p.2990
Main Authors: Ye, Jianmu, Kulathunga, KMMCB
Format: Article
Language:English
Subjects:
Attitudes
Competition
Decisions
Developing countries
Experimental research
LDCs
Small & medium sized enterprises-SME
Small business
Sustainability
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Summary:Role of the knowledge-based resources in promoting sustainability in small and medium enterprises (SMEs) is currently a topic of debate. Financial literacy has been identified as a vital knowledge resource for financial decision making, but insufficient attention has been given to how SMEs’ financial literacy affects their sustainability. Drawing upon a knowledge-based perspective, peaking order theory and dual process theory, we constructed an integrated model to examine the impact of financial literacy, access to finance and financial risk attitude on SMEs’ sustainability. The sample included 291 chief financial officers (CFOs) of SMEs in Sri Lanka. The output of structural equation modelling revealed direct positive effects of financial literacy, access to finance and financial risk attitude on sustainability. Financial literacy also emerged as a predictor of access to finance and financial risk attitude. Moreover, access to finance and financial risk attitude were found to be partial mediators of the relationship between financial literacy and SMEs’ sustainability. Theoretical implications and practical implications for policymakers, industry practitioners and academics interested in promoting sustainability amongst SMEs are discussed.
ISSN:2071-1050
2071-1050
DOI:10.3390/su11102990