Financial literacy and business performances improvement of micro, small, medium-sized enterprises in East Java Province, Indonesia

Abstract

The primary purpose of this study is to examine the relationship between financial literacy and business performance improvement of MSMEs in East Java Province. Data collection from a survey questionnaire of 399 respondents was used to examine the research model. Then, the research model was analysed primarily using logistic regression supported by SPSS V.20 Software. The results of the study show that bookkeeping literacy and budgeting literacy has been proven as the significant predictor of sales growth, profit growth and overall business performance of MSMEs. However, control variables such as gender, education, and experience do not give any critical role in the relationship between financial literacy and business performance improvement of MSMEs. Theoretically, this study proposed that increasing the level of financial literacy for MSMEs managers related to bookkeeping and budgeting skills can enhance the business performance of MSMEs. Practically, the results of the study can be used as a reference for increasing the level of financial literacy for MSMEs managers who are still low in Indonesia. It is suggested to develop well-structured regular training for MSMEs managers regarding bookkeeping and budgeting skills in improving the level of financial literacy and business performance simultaneously.