The Impact of Entrepreneurship and Mental Accounting on Business Sustainability: Exploring the Influence of Financial Performance

Abstract

The primary objective of this study is to explore and understand the impact of entrepreneurship (EP) and mental accounting (MA) on financial performance (FP) and business sustainability (BS) in Micro, Small, and Medium Enterprises (MSMEs) in Central Java, Indonesia. This study assesses how these factors contribute to the long-term success of MSMEs, the backbone of a country's economy. The quantitative methodology relies on the Partial Least Squares Structural Equation Modeling (PLS-SEM) to predict and confirm the relationships among variables. A purposive sampling technique was chosen to collect data from 473 MSME respondents in Central Java, ensuring that the selected sample had characteristics relevant to the research focus. This study fills a research gap by focusing on the role of financial performance as a mediator between entrepreneurship, mental accounting, and business sustainability, which has not been extensively explored in prior literature. The study results indicate that EP and MA positively impact the FP and BS of MSMEs. The specific finding that FP mediates the positive relationship between EP and MA with BS provides new insights that can be used to design policies and programs supporting the growth and sustainability of MSMEs. The implications of these findings are highly relevant for stakeholders and policymakers involved with MSMEs. By strengthening entrepreneurial capacities and accounting practices, MSMEs can enhance financial performance to support long-term business sustainability. This research suggests that targeted interventions in entrepreneurial training and accounting education could be effective strategies to improve the sustainability of MSMEs. This study contributes significantly to the existing literature and paves the way for further research on factors affecting business sustainability in the MSME sector.