The use of financial statements for decision making by small firms

Abstract

This paper uses a sample of 312 small firms to examine the use of financial statements by analyzing factors that (1) affect the use of financial statements and (2) owners’ comfort in interpreting financial statements. Financial statements provide important information that should be used to help guide decisions. The findings showed that owner comfort in using financial statements to make decisions was inversely associated with frequency of preparation and directly associated with level of revenues. Additionally, the results showed that whether the whether the owner uses financial decisions when making decisions was indirectly associated with education level and having the statements prepared externally and directly associated with owner comfort interpreting the information in financial statements. The results should be useful for owners of SMEs and providers of services to SMEs to better understand which factors affect the use of financial statements and the process by which financial statements get incorporated into decisions.