A structural equation model of financial accounting practices and use of it impacting msmes performance: Moderation by entrepreneurial skills

Abstract

In order to remain creditworthy and investable, the entrepreneurs should be able to produce high quality and standardised financial information on a regular basis. This information can be fed further into formal business plans in order to optimise management decisions and improve business processes. The critical question that needs to be answered is: Do the entrepreneurs possess adequate financial literacycompetencies, to gather and utilize the financial information, to achieve their business objectives? Does their level of financial literacy significantly explain their use of information technology for gaining competitive advantage? With the introduction of GST, there has been a change in the accounting environment of business through increased usage of computerised accounting systems (CAS) and heavy reliance on accountants for this purpose. This paper specifically aims to assess the financial literacy skills of MSME entrepreneurs in creation and utilisation of financial information using CAS and digital skills, to achieve better financial management and control over business activities. The structural model developed in this paper confirmed the positive association of financial accounting practices and use of IT with the business performance of MSMEs. Since entrepreneurial skills are intended to complement the financial literacy competencies of entrepreneurs, the paper also examined and confirmed the moderating effect of entrepreneurial skills on financial accounting practices and business performance relationship.