The Psychological Pathway to MSME Sustainability: Financial Literacy and Financial Efficacy

Dewi Khornida Marheni; Evan Ferdinand; Wisnu Yuwono; Roque B. Cruz II

doi:10.61255/jeemba.v4i5.1465

Authors

Dewi Khornida Marheni Universitas International Batam, Indonesia
Evan Ferdinand Universitas International Batam, Indonesia
Wisnu Yuwono Universitas International Batam, Indonesia
Roque B. Cruz II Camarines Sur Polytechnic Colleges, Philippines

DOI:

https://doi.org/10.61255/jeemba.v4i5.1465

Keywords:

Financial Literacy, Financial Efficacy, Financial Sustainability, MSME

Abstract

Purpose – The purpose of this study is to examine the role of financial literacy and financial efficacy in building financial sustainability of MSMEs in Batam, Indonesia, where declining financial literacy rates and low entrepreneurial confidence may threaten MSMEs sustainability in the long term.

Design/methodology/approach – This study uses a quantitative method with 339 MSME owners and managers in Batam as respondent. Semi structured interviews with three MSME entrepreneurs were subsequently conducted solely to provide contextual explanations for the quantitative findings. The hypotheses were tested using partial least squares structural equation modeling (PLS-SEM) with SmartPLS.

Finding/Results – Financial attitude and financial knowledge were positively associated with financial literacy, while financial behavior does not. Financial literacy was positively associated with financial efficacy and financial sustainability, and financial efficacy mediates the relationship between financial literacy and financial sustainability.

Originality/Value – Rather than treating financial efficacy as an additional predictor, this study position it as the psychological mechanism through which financial literacy is translated into MSME sustainability. By integrating the theory of planned behavior and social cognitive theory. This study provides theoretical, contextual, and methodological contributions to the literature on financial sustainability.

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