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

Abstract

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.

Internal Control and SMEs’ Sustainable Growth: The Moderating Role of Multiple Large Shareholders

“…First, our study adds to the emerging literature on the determinants of sustainable growth by examining the governance role of internal control in sustainable growth. Previous studies focus on the role of intellectual capital, international and financial capabilities, technology, innovation, and social responsibility in a firm's sustainable growth (e.g., Xu and Wang 2018;Ma Degong et al 2018;Ye and Kulathunga 2019;Lyver and Lu 2018;Hong and Chao 2018). This study provides additional evidence on the understanding of internal control as a contributor of sustainable growth.…”

“…Particularly in the current time of global economic downturn and burgeoning trade conflicts, SMEs face huge challenges and risks to compete for survival and sustainable growth due to a lack of internal and external resources in a turbulent market. While a considerable body of literature has discussed the factors that significantly contribute to firms' sustainable growth, such as intellectual capital (Xu and Wang 2018), international and financial capabilities (Ma Degong et al 2018;Ye and Kulathunga 2019), technology (Lyver and Lu 2018), innovation and corporate social responsibility in developed and emerging markets (Ge et al 2018;Hong and Chao 2018), there is little attention paid to the role of internal control as a tool of risk management in SME's sustainable growth in emerging and transition economies.…”

The Role of Mutual Guarantee Institutions in the Financial Sustainability of New Family-Owned Small Businesses

“…Lack of access to credit needed for SMEs to be able to survive, especially in the context of financial stress, is a serious problem. It is more difficult and costly for SMEs to access credit than it is for larger companies, even in developed countries [7,8]. In this sense, one of the main problems faced by SMEs, especially young companies, is the lack of collateral, which hinders access to finance.…”

“…On the other hand, credit is essential for the maintenance of these firms during their first years of life, under conditions of financial stress and to ensure intergenerational transition [9]. Likewise, insufficient financial literacy has been recognised as one of the main reasons for the failure of SMEs [10] and as a barrier to the sustainable development for these companies [7]. [11] identified the impact of the lack of finance on business organisations in the start-up period.…”

“…[11] identified the impact of the lack of finance on business organisations in the start-up period. The role of knowledge-based resources in promoting sustainability in SMEs is a very contemporary issue and financial literacy has been considered as the key to financial decision making [7].…”