SME Managers’ Financial Literacy on Firm Practices in Tanzania

Abstract

The study examined the impact of SME managers' financial literacy on firm key practices of financial planning and control, bookkeeping and use of financial services. The study uses a structural equation modelling-partial least square (SEM-PLS) model to examine the variables relationships using SmartPLS 3 software. The results reveal the significant contribution of financial knowledge on financial attitude and behaviour. Also, financial attitude demonstrates to have a significant impact on the firm financial planning and control, bookkeeping functions and firm use of financial services. Financial behaviour as a component of financial literacy has a significant association with bookkeeping function and use of financial service. This study also provides insight into the individual categories of financial literacy (financial knowledge, financial attitude, financial behaviour) influence on firm internal and market practices. Enhancing SMEs managers' financial literacy would have a multifaceted impact on firm financial management, practices ultimately improve its performance.