Financial Literacy and Financial Performance of Sme’s In Sekondi Takoradi Metropolis: the Mediating Role of Financial Management Practice

Abstract

ABSTRACT Despite the significance and involvement of small and medium enterprise to the economy, several empirical studies indicate that most SMEs fail to grow with some folding up within the first few years of their operation. This study achieved the objectives of assessing the financial performance of SMEs and the mediating role of financial management practice on the effect of financial literacy on financial performance. The study discussed the financial management practice theory, resource-based theory, the principle of financial literacy and financial performance evaluation as part of the theoretical and conceptual analysis. The study adopted the descriptive statistics and correlation analysis in a quantitative approach. In all, 327 SMEs in the Sekondi-Takoradi Metropolis were included in the study and the research employed a questionnaire to elicit the required data for the study. The study employed frequency tables, structural equation modelling and correlation analysis to examine financial literacy and financial performance with the mediating role of financial management practice between SMEs in Sekondi-Takoradi Metropolis. The study concluded that financial management practices mediate financial literacy and financial performance nexus. Based on the discoveries of the research, we can conclude that sampled SMEs in the metropolis were performing well financially and financial management practices mediated financial literacy. Moreover, the study recommended that, policies should be directed ensuring that first, managers of SMEs are trained to become financial literate. Again, regular studies should be conducted for SMEs manager on how to undertake financial management practices.