The effect of financial literacy on the medium scale enterprise performance: Evidence from Bench Sheko zone

Abstract

Medium-sized enterprises currently encounter significant challenges in effectively managing their operations, often struggling to sustain long-term viability. Financial literacy equips business owners with the knowledge necessary to make informed and strategic decisions regarding financial matters, thereby fostering a robust business environment. However, the impact of financial literacy on the performance of medium-sized enterprises has not been thoroughly investigated. Consequently, this study aims to evaluate the influence of financial literacy on the performance of medium-sized enterprises in the Bench Sheko zone. An explanatory research design combined with a descriptive survey approach was utilized for this investigation. Out of a total of 453 medium-sized enterprises, 212 were selected using a stratified random sampling method. Financial literacy was treated as the independent variable, assessed through budgeting literacy, debt management literacy, accounting literacy, and saving literacy. In contrast, enterprise performance was measured as the dependent variable through return on assets. The findings indicated that budgeting literacy, debt management literacy, accounting literacy, and saving literacy positively and significantly affect the performance of medium-sized enterprises. Therefore, it is recommended that the government enhance the financial literacy of medium-sized enterprise owners through training programs and by integrating financial literacy topics into formal education, thereby improving the performance of these enterprises.