Financial literacy, financial development, and leverage of small firms

Shabeen Afsar Basha, Hamdi Bennasr and Mohamed Goaied

International Review of Financial Analysis, 2023, vol. 86, issue C

Abstract: This study examines the relationship between financial literacy and the leverage of small firms, specifically of the legal forms, sole proprietorships, and partnerships. Using a cross-section of 73,302 firms in 22 countries, we find that the leverage of small firms is negatively associated with financial literacy. Further, we explore the role of financial development, bankruptcy and transaction costs, and information asymmetry, in moderating the relationship. We find that the negative relationship is less pronounced in countries with lower financial development, high bankruptcy and transaction costs, and high information asymmetry environments, respectively. We contribute to the understanding of small firms' leverage and the literature on financial literacy, SMEs, finance, and entrepreneurship. This study offers policy implications for economies that promote SMEs for entrepreneurship training and development.

Keywords: Capital structure; Leverage; Financial literacy; Small firms (search for similar items in EconPapers)
JEL-codes: C31 G32 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:86:y:2023:i:c:s1057521923000261

DOI: 10.1016/j.irfa.2023.102510

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