The Impact of Financial Literacy on New Venture Survival

Abstract

This is an investigation into the impact of financial literacy on new venture survival. A model is proposed in which increased adoption of financial tools (e.g. financial statements and financial ratios) leads to increased frequency of financial statement generation which in turn increases the likelihood of loan repayment and decreases the probability of venture failure. A structural model was then tested using data from 509 young entrepreneurs in Canada who had received start up loans through their participation in a program by the Canadian Youth Business Foundation. This research found that increases in financial literacy led to more frequent production of financial statements. This research found that entrepreneurs who produced financial statements more frequently had a higher probability of loan repayment and a lower probability to close their venture involuntarily.

Is knowledge that powerful? Financial literacy and access to finance

“…The preceding literature supports the assertion that there is a relationship between financial literacy, the management skills of entrepreneurs and the competitiveness of the economy (Wise, 2013;Binks et al, 2006). Therefore, over the recent past, there has been an upsurge in studies which have identified the need for financial education and literacy amongst SMEs (Fatoki, 2014;Wise, 2013;Hussain et al, 2008;Binks et al, 2006). One of the explanations offered by banks in the UK for the higher rejection rate of loan applications by SMEs is the poor preparation and provision of financial information to allow for adequate risk assessment due to information asymmetry that involves a higher diligence and monitoring cost (Deakin and Hussain, 1994).…”

“…The preceding literature supports the assertion that there is a relationship between financial literacy, the management skills of entrepreneurs and the competitiveness of the economy (Wise, 2013;Binks et al, 2006). Therefore, over the recent past, there has been an upsurge in studies which have identified the need for financial education and literacy amongst SMEs (Fatoki, 2014;Wise, 2013;Hussain et al, 2008;Binks et al, 2006).…”

The Impact on Management Experience on the Performance of Start-Ups within Accelerators

“…This is management's primary valuecreating activity-the f low of knowledge to tenant firms through their access of incubation services. In some cases, management possesses the relevant knowledge themselves, by virtue of their own prior experience as entrepreneurs dealing with the strategic and operational challenges of new venture creation (Wise [2013]). And in other cases the relevant knowledge is possessed by others, with management acting to broker that knowledge to their tenant companies by drawing up their own professional networks (Osborne [2004]; Papagiannidis et al [2009]; Warren et al [2009]).…”

Reviewing Financial Literacy for SMEs and Entrepreneurs in Developing Economies

“…[3] conducted a study on the impact of financial literacy on firm financial service utilization. [14] assessed the level of micro entrepreneurs in South Africa. [15] present examination of rule of thumb training results on financial literacy.…”