Determining Financial Performance with Financial Literacy as a Mediating Variable for SMES in Lhokseumawe

Abstract

Using financial literacy as a mediating variable, the research examines the impact of financial capital, accounting knowledge, and financial technology on the financial performance of Micro, Small, and Medium-Sized Enterprises (MSMEs) in Lhokseumawe.  Using a sample of 99 MSME entrepreneurs obtained by using the Slovin algorithm, the research uses primary data out of a population of 6,848 MSMEs. Data were analyzed using SmartPLS 4 following a structural model (Structural Equation Modeling, or SEM).  Results confirm that financial performance is positively and significantly affected by financial capital, financial technology, and financial literacy.  In the meantime, financial performance is negatively and insignificantly impacted by accounting knowledge. Besides, the impact of financial capital and financial technology on financial performance is significantly and positively mediated by financial literacy. However, it does not mediate the effect of accounting knowledge on financial performance. This suggests that while accounting knowledge is important, its impact on the financial performance of MSMEs is relatively minor. These results underscore the crucial role of financial literacy in enhancing the relationship between financial factors and MSME performance.