Harnessing financial confidence: exploring the interplay of self-efficacy, knowledge, behavior, and risk tolerance in elevating SME success - a study of East Java’s entrepreneurs

This study examines the impact of financial self-efficacy, knowledge and behavior on MSME performance, with financial risk tolerance moderating the link between self-efficacy and behavior. Conducted among 1,128 East Java SMEs using Partial Least Square (PLS) analysis, the findings reveal that financial self-efficacy alone does not significantly affect performance, but financial knowledge does. Financial behavior plays a crucial role as an intermediary variable, shaped by both knowledge and self-efficacy. High financial risk tolerance leads to risk-averse behavior, making SME actors cautious in financial decisions. The study highlights the importance of financial literacy in fostering responsible behaviors that enhance business performance. Additionally, it emphasizes the need to consider financial risk tolerance when evaluating the effect of financial self-efficacy on behavior. These insights guide SMEs in East Java, stressing the importance of financial literacy programs to improve performance through better financial management strategies.