Effect of owner-manager\u2019s financial literacy on the performance of SMEs in the Cape Coast Metropolis in Ghana

Daniel Agyapong,Albert Bampo Attram

doi:10.1186/s40497-019-0191-1

Abstract

Financial literacy enables owner-managers of SMEs to understand and assess their own financial needs and make rational financial decisions. The paper explores the financial literacy of owner-managers of SMEs in the Cape Coast Metropolis and how such literacy influences the performance of their businesses. The study population were owner-managers of registered SMEs in the Cape Coast Metropolis from the National Board for Small and Medium Enterprise, out of which a sample of 132 was selected through the simple random sampling technique. The data was analyzed using Structural Equation Model. The results showed a positive relationship between financial literacy and the firm’s financial performance (t = 35.631, p < .00). The paper recommends that policy makers should specifically design a program and platform targeted at further enhancing the financial literacy level of these owner-managers to help improve the performance of their firms.

Highlights

Small and medium enterprises (SMEs) continue to be the backbone of the economy in high-income countries
The paper sought to look at the effect of financial literacy of owner-managers and the performance of their businesses
This is on the score that previous studies have not focused on such an important issue

Summary

Introduction

Small and medium enterprises (SMEs) continue to be the backbone of the economy in high-income countries. Such businesses contribute significantly to gross domestic product, employment, innovation and income in low-income countries (OECD 2005) They are the main source of employment in countries like Ghana because they form about 90% of registered companies in Ghana (Adom et al 2014; Laary 2015; Peprah, Mensah and Akorsah 2016). Among the SMEs’ performance outcomes are sales growth, profit margin, cost efficiency, and market share (Watson 2007). Such outcomes are necessary if SMEs will play their role as catalyst to economic development

Methods

Findings

Conclusion