Financial Management Practices and Innovative Performances of the Nigerian SMEs Sub-Sector: A Conceptual Approach

Abstract

Purpose: The role of small and medium-scale enterprises (SMEs) in economies all over the world is well established as a vital propeller of economic growth and other macroeconomic balances. Thus, the growth of SMEs has been at the center of scholarly debates since the last decade, with many factors including financial management practices as well as innovative practices, contributing to the extensive study of the performances of SMEs. However, with unpopular arguments in literature in the context of financial management practices and SMEs’ innovative performances, this study attempts to explore how prudent financial management practices could inform SMES’ innovative performances. Methodology: Being a conceptual paper, the methodology adopted is explorative in nature, where literature was extensively explored in line with the research aim and specific study objectives. Findings: The outcome of the explorative literature study revealed that financial management practices are important determinants of SMEs’ innovative performances. This shows that working capital management, investment appraisal and analysis, financial information system management, financing and capital structure management are practices that SMEs must incorporate to foresee and take advantage of innovative opportunities that will lead to innovative performances Unique Contribution to Theory, Policy and Practice: This conceptual paper adds fresh arguments to the existing literature on financial management practices, innovation, and SMEs' performances by hypothesizing a positive relationship between different financial management practices (particularly, working capital management, investment assessment practices, financing and capital structure management, as well as financial information system management) and the innovative performances of SMEs. Thereby, we are ushering in a gateway for new empirical studies on the phenomenon of financial management practices and innovative performances of SMEs. In addition, SMEs’ owners and manager can leverage on the implications of this study to inform practical decisions on various financial management practices.