Financial literacy and sustainability of SMEs: the mediating and moderating effect of entrepreneurial financing choice, risk-taking and social capital

Purpose This study aims to empirically examine how financial literacy affects small and medium-sized enterprise (SME) sustainability indirectly through entrepreneurial financing choice (EFC) and risk-taking among SMEs by considering the moderating role played by social capital. Basically, as intangible assets, both financial literacy, risk-taking and social capital are considered crucial for SMEs’ sustainability in Indonesia. Design/methodology/approach This is a quantitative study that used a survey questionnaire. Its hypotheses were assessed based on the 608 surveys completed by SME owners, which served as the study’s sample. The data were analysed using partial least squares structural equation modelling (PLS-SEM) through SmartPLS-4.1. Findings The study revealed that financial literacy indirectly affected SME sustainability through EFC. Nevertheless, it did not indirectly influence SME sustainability via risk-taking. It was also found that social capital moderated the relations between financial literacy-SME sustainability and financial literacy-EFC. Practical implications From a practical standpoint, our study provided entrepreneurs with valuable insight into how financial literacy could be implemented to achieve SME sustainability. They could also use EFC to drive their sustainability. Finally, they could use social capital through network, norm and trust to create opportunities to make use of external financing, such as loans to maintain their SME sustainability. Originality/value Based on resource-based view theory, this study enriched the existing body of knowledge on SMEs. As found in this study, SMEs could sustain their performance using imitable, non-transferable and non-substitutable intangible resources such as financial literacy, EFC, risk-taking and social capital.