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

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  • Jianmu Ye

    (School of Management, Wuhan University of Technology, Wuhan 430070, China)

  • KMMCB Kulathunga

    (School of Management, Wuhan University of Technology, Wuhan 430070, China
    Department of Management Sciences, Faculty of Management, Uva Wellassa University of Sri Lanka, Badulla 90000, Sri Lanka)

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.

Suggested Citation

  • Jianmu Ye & KMMCB Kulathunga, 2019. "How Does Financial Literacy Promote Sustainability in SMEs? A Developing Country Perspective," Sustainability, MDPI, vol. 11(10), pages 1-21, May.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:10:p:2990-:d:234453
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