The Moderating Effect of Liquidity on the Relationship between Expenditure and Financial Performance of SMEs in Indonesia

Abstract

Small and medium-sized businesses (SMEs) have emerged as one of the key engines of the country's economy by conducting autonomous business operations on their own and in alliance with other businesses across a range of industries. SME actors must employ strategies that can help them understand how businesses can adapt and respond to drastic changes. This research aims to examine the influence of determining factors on the financial performance of SMEs moderated by liquidity. The independent variables in this study include accounting expenses, advertising expenses, liquidity, and working capital, while the dependent variable is financial performance. This research was conducted by collecting data from 31 SMEs in Indonesia listed in Pefindo25 index over a period of 5 years (2018-2022), using panel data regression models for analysis. The results of the study obtained are that the variables of accounting expenditure, advertising expenditure, liquidity moderation on accounting expenditure, and working capital have a significant effect on financial performance, while the variable liquidity moderation on advertising expenditure does not have a significant effect on financial performance.