Working Capital Management Practices and Firm Performance among SMEs: The Moderating Role of Financial Literacy
Main Article Content
Abstract
Small and medium-sized enterprises (SMEs) play a crucial role in economic development, yet they often struggle with inefficient working capital management (WCM), particularly in developing economies. Effective WCM, which encompasses inventory, payables, receivables, and cash, can enhance performance; however, the role of financial literacy in this relationship remains underexplored. This study addresses this gap by proposing and testing a conceptual model in which financial literacy moderates the relationship between WCM practices and SME performance. A quantitative, cross-sectional design was used to analyse data from 300 SME owner-managers in Kilimanjaro, Arusha, and Dar es Salaam using PLS-SEM. Direct and moderated links between WCMPs, specifically cash, receivables, payables, and inventory management and business performance were examined using partial least squares structural equation modelling (PLS-SEM). The findings indicate that, unlike receivables management, cash, payables, and inventory management have a positive impact on performance. The relationship between cash management and performance is considerably moderated by financial literacy, which improves liquidity and investment decisions. This moderation effect enhances liquidity management, assessing financial risks and decision-making in resource-constrained environments.
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References
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