Effect of financial management practices on the development of small-to-medium size forest enterprises: insight from Pakistan

Abstract

Rapid change in the business environment worldwide has driven the transformation of small-to-medium size forest enterprises (SMFEs) to advance toward sustainable development. Although the success of SMFEs is important for every developing economy researchers have shown a high failure rate of about 90% around the globe because of poor financial management practices. Literature related to financial management practices suggests the benefits of executing financial management practices for improving business growth. This research contributes to the existing gap in financial management practices literature by analysing the impact of financial management practices on the growth of SMFEs in the developing economy of Pakistan. The focus of this research was on the five financial management practices, namely working capital management, financial reporting, accounting information systems, investment decisions, and financing. Data was collected from 260 SMFEs owners, finance managers, and other finance staff through structured questionnaires to test the five hypotheses. The findings of the analyses show that a higher degree of conduct of working capital management, financial reporting, accounting information systems, investment decisions, and financing practices is positively associated with financial performance and firm growth. The results also indicate a significantly strong positive correlation between financial management practice and firm growths. The improvement of financial performances in small firms using financial management practices offers valuable implications for owners, managers, and regulators and is a crucial factor for the success of SMFEs. This study continues the discussion on several practical implications along with recommendations for future research.