How Debt Literate and Financial Literacy Enhance Smes Performance: The Intervening Role of Financial Experience

Abstract

This study aimed to analyze the effect of debt literate, financial literacy, and financial wellbeing on SMEs performance directly and through financial experience. This research was conducted by visiting SMEs managers in Central Java, Indonesia. The total sample was 475 respondents who had answered the questionnaire completely. The data was analyzed using the model structure to determine the direct and indirect effects. The results show that the financial literacy variable has a direct and indirect effect through financial experience on the SMEs performance. The debt literate variable does not have a direct effect on it, but it has an indirect effect through financial experience. In addition, financial well-being has no effect on the SMEs performance either directly or through moderation of financial experience. These empirical findings provide evidence that SMEs performance can be improved through financial literacy, debt literate, and financial experience. There needs to be an increase in financial literacy and financial experience for SMEs owners in order to be able to understand every financial phenomenon that can hamper SMEs performance improvement. Further research is required to investigate the predictability of debt and financial literacy in enhancing SME performance using a different sample from several settings.