A Study Between the Association of Financial Management Practices and Performance of Small and Medium Enterprises (SMEs) Background: A Working Paper

L. Sooriyakumaran, Dr. S. S. Thrikawala and C. Pathirawasam
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L. Sooriyakumaran: Advanced Technological Institute, SLIATE, 320, T B Jayah Mawatha, Colombo, Sri Lanka
Dr. S. S. Thrikawala: Waikato Institute of Technology, New Zealand
C. Pathirawasam: Professor, Department of Commerce & FM3, University of Kelaniya, Sri Lanka

International Journal of Research and Innovation in Social Science, 2022, vol. 6, issue 1, 166-179

Abstract: The purpose of the study was to identify the factors of financial management practices in SMEs background and to examine whether they impact on business performance of SMEs. A literature survey was carried out, and expert consultation was employed to develop this working paper. With the help of the literature survey and experts’ consultation, the association between financial management practices (FMP) and business performance (BP) was investigated. Accordingly, there were six indicators of financial management practices were identified in the literature namely; maintaining accounting records (MAR), financial reporting preparation and analysis (FRPA), accounting information system (AIS), working capital management (WCM), investment decision (ID) and financing (FIN). In addition, dependent variable of business performance. The literature evidenced that there are associations between FMP and BP in the SMEs. This includes positive, negative and no significant correlations or impact among variables of SMEs contributors. Accordingly, this study suggested a conceptual model for testing six hypotheses to examine the association between FMP and BP. Further, this study recommends an empirical study through explorative factor analysis and confirmatory factor analysis to develop valid and reliable instruments to measure the FMP in the SMEs context. A path model was suggested to examine whether FMP influences BP in the SMEs background and further identify the moderating effect of demographic factors of gender and education level of financial management practitioners and business age of SMEs.

Date: 2022
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