How does technological and financial literacy influence SME performance: Mediating role of ERM practices

Abstract

The knowledge-based view (KBV) in the development of small and medium-sized enterprises (SMEs) is a debatable topic in the current literature. Although convergence of technological and financial literacy (techno-finance literacy) is an essential knowledge-based tool to address rapid digitalization of business, the influence of techno-finance literacy in the development of SMEs is still not adequately researched. Drawing upon KBV, we developed a single-mediator structural model with an aim to explore the effect of techno-finance literacy and enterprise risk management (ERM) practices (applications) on the performance of SMEs. A self-administered structured questionnaire was employed to collect data from 319 chief financial offers (CFOs) in Sri Lankan SMEs. The outcome of our study highlights that techno-finance literacy is a significant determinant of two endogenous constructs, namely, SME performance and ERM practices. Furthermore, ERM practices of SMEs were also positively affected to the SME performance. Moreover, ERM practices were observed to have a partial mediation on the relationship between financial literacy and SME performance. These findings form the basis for theories in techno-finance literacy and SME performance, as well as present managerial implications to enhance the performance of SMEs.