Abstract:
This study evaluates the impact of owner-managers financial literacy on firm
performance in small and medium enterprises (SMEs) in Sri Lanka. It particularly seeks
to answer whether owner-managers accounting literacy, debt management literacy,
banking services literacy, and financial planning and budgeting literacy greatly influence
SME firm performance. The quantitative research design was used by administering a
structured questionnaire face-to-face to 250 respondents who were representing different
SMEs in Sri Lanka. The measurement scales were subject to testing reliability and
validation after guidelines in this area. The proposed hypotheses were tested using
structural equation modelling (SEM) with 5000 bootstrap subsamples. The result
indicates that financial planning and budgeting literacy, debt management literacy, and
banking service literacy have statistically significant positive impacts on the firm
performance of SMEs. However, while accounting literacy was hypothesized to
influence firm performance positively, the statistical analysis did not support such an
effect. The above results imply that (1) SME owners and managers need to concentrate
their business on developing financial literacy in financial planning, budgeting, debt
management, and banking services to optimize resource use and raise competitiveness.
(2) It focuses on how the policymakers and regulatory institutions must develop
interventions and programs to enhance financial education and training among SME
stakeholders. (3) financial institutions and consultancy firms must design their products,
services, and advice to address the dimensions of financial literacy that are most likely
to lead to SME success.
