Research of the Impact of Financial Dimensions and Entrepreneurial Capacity on Business Performance in Small and Medium Enterprises in Central Java

Abstract

Background: The number of Indonesian SME units in 2018 was 99.9% of the total business units (62.9 million units), absorbing 97% of the total employment and contributing 60% to GDP. However, two fifth of Indonesia SMEs has internal and external capital and financial acquisition constraints. Purpose: Based on the entrepreneurship and finance theories, this study aims to analyze the influence of the entrepreneurship capability on improving the business performance of a Central Java fashion industry of batik SMEs with the mediating effect of financial dimension. Methodology: Types of data used in this study are primary data and secondary data. The study population was the owner of the SME batik business in Pekalongan, Central Java. The sampling technique was non-probability sampling with a purposive sampling approach of saturated sampling. Principal results: The results showed that the entrepreneurship capability and the internal financial dimension had a positive effect on the business performance of the batik SMEs, while the external financial dimension had a negative effect on the business performance. Moreover, the internal financial dimension was able to mediate the entrepreneurship capability on the business performance of the batik SMEs. Major conclusions: The improvement in the performance of batik SMEs is influenced by the entrepreneurship capability and it will increase if it is mediated by the internal financial dimension. Contributions to the field: There are research contributions of this study, by exploring the indicators from the funding dimension variable and indicators from the entrepreneurship capability variable from a psychological side. Important aspects of the study: What makes this research different from previous researches is that the independent variables used and the research object are different and broader.

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