Home⇛Business Research Journal⇛vol. 5 no. 1 (2019)

Financial Literacy, New Venture Survival, and Debt Repayment

Lerma B. Bautista

 

Abstract:

Entrepreneurs have strong drives for financial sustainability. More importantly, they have a major role in economic development as they create jobs, products and services. Creation of new ventures is essential to economic growth and competitiveness of countries. However, starting a new venture and working on new firm survival by entrepreneurs can be difficult. It has been revealed in a large body of research that low business age has a negative relationship with firm survival and young firms have higher risks of survival than older businesses. With the wealth of explanations why new ventures fail, one of which is financial literacy. Entrepreneurs were found to be deficient in financial knowledge which is important in better management of their finances that include credit management. Thus, there is a need to study the financial literacy of entrepreneurs and the outcomes as a result of this knowledge on new venture survival and debt repayment. New firms are empowered with knowledge and experience through the human capital of their founders, the entrepreneurs. Empirical researches reveal that the knowledge and experience of the entrepreneur influence the firm’s survival and that links between the entrepreneurs’ human capital profiles and outcomes relating to firm entry, exit and performance have been identified. Consequently, financial literacy may aid in decisions that involve bills payment. Individuals who are financially illiterate of their personal finances may also be illiterate in the financial management of their new business. This study investigated the relationship of the financial literacy of entrepreneurs, new venture survival and debt repayment of the businesses. It used the set of financial literacy questions designed by Van Rooij, Lusardi and Alessie. It has been found that financial literacy has negative correlation with default in debt repayment but it has also revealed that the financial literacy of the entrepreneur has no significant relationship with new venture survival. Future research studies may include in their analysis the new ventures that have already closed to better capture the relationship of the variables.



References:

  1. Adomako, S., & Danso, A. (2014). Financial Literacy and Firm performance : The and Resource Flexibility.
  2. Agarwal and Michael Gort (2018) Firm and Product Life Cycles and Firm Survival Author ( s ): Rajshree Source : The American Economic Review , Vol . 92 , No . 2 , Papers and Proceedings of the One Hundred Fourteenth Annual Meeting of. (2018), 92(2).
  3. Atkinson, A., & Messy, F. (2012). Measuring Financial Literacy, (15).
  4. Baldwin, R. E. (1999). Agglomeration and Endogenous Capital. European Economic Review, 43(2), 253–280. https://doi.org/10.1016/S0014-2921(98)00067-1 Becker, G. (1994). Human Capital Revisited. Journal of Chemical Information and Modeling, 53(9), 1689–1699. https://doi.org/10.1017/CBO9781107415324.004
  5. Bosma, N., & Boschma, R. (2009). The Geography of Entrepreneurial Activity and Regional Economic Development: Multilevel analyses for Dutch and European regions. Faculty of Geosciences (Vol. Ph.D.).
  6. Box, M. (n.d.). New Venture , Survival , Growth. Catherine Bell, Daniel Gorin, J. M. H., & Federal Reserve Board, D. of C. & C. A. (2009). Journal: JOURNAL OF CONSUMER AFFAIRS. Federal Reserve System Community Affairs Research Conferenc, (January 2008), 9–11.
  7. Cunningham, A. F., & Kienzl, G. (2011). Delinquency: The Untold Story of Student Loan Borrowing. Report: Institute Fo Higher Education Policy, 1–44. Retrieved from papers2://publication/uuid/362E1909-EA67- 4C4A-BE57-2C93920E107A
  8. Dencker, J. C., Gruber, M., & Shah, S. K. (2009). Pre- Entry Knowledge, Learning, and the Survival of New Firms. Organization Science, 20(3), 516–537. https://doi.org/10.1287/orsc.1080.0387  Economics, I. (2018). Does Entry Size Matter ? The Impact of the Life Cycle and Technology on Firm Survival Author ( s ): Rajshree Agarwal and David B . Audretsch Published by : Wiley Stable URL : https://www.jstor.org/stable/3569744, 49(1), 21–43.
  9. Esteve-Pérez, S., Pieri, F., & Rodriguez, D. (2018). Age and productivity as determinants of firm survival over the industry life cycle. Industry and Innovation, 25(2), 167–198. https://doi.org/10.1080/13662716.2017.1291329
  10. Gathergood, J. (2012). Self-control, financial literacy and consumer over-indebtedness. Journal of Economic Psychology, 33(3), 590–602. https://doi.org/10.1016/j.joep.2011.11.006
  11. Gilbert, B. A., McDougall, P. P., & Audretsch, D. B. (2006). New venture growth: A review and extension. Journal of Management, 32(6), 926–950. https://doi.org/10.1177/0149206306293860  Grohmann, B. A., & Menkhoff, L. (2017). Financial literacy promotes financial inclusion in both poor and rich countries, 46(1).
  12. Hannon, G., Covington, M., Frank-miller, E., & Grinstein-weiss, M. (2017). Employee Financial Wellness Programs : and Directions for Future Research, (17).
  13. Hastings, J. S., Madrian, B. C., & Skimmyhorn, W.L. (2013). Financial Literacy , Financial Education , and Economic Outcomes, 347–376. https://doi.org/10.1146/annurev-economics- 082312-125807
  14. Hogarth, J. M., Beverly, S. G., & Hilgert, M. (2003). Patterns of financial behaviors: Implications for community educators and policy makers. Patterns of Financial Behaviors: Implications for Community Educators and Policy Makers, 1–28. Retrieved from http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.196.5257
  15. Kaiser, T., & Menkhoff, L. (2017). Does Financial Education Impact Financial Literacy and Financial Behavior, and If So, When?, (August). Retrieved from https://openknowledge.worldbank.org/bitstream/handle/10986/27968/WPS8161.pdf?sequence=1&isAllowed=y%0A https://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2753510
  16. Krechovská, M. (2015). Financial Literacy As a Path To Sustainability. Trendy v Podnikání, Vol 5, Iss 2, Pp 3-12 (2015) VO - 5, 5(2), 3. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=edsdoj&AN=edsdoj.4f03834bbe44740bb435273a26aadfa&site=eds-live
  17. Lusardi, A., & College, D. (2008). Debt Literacy , Financial Experience , and Overindebtedness : Just the Facts, 1–2.
  18. Lusardi, A., & Mitchell, O. S. (2014). The Economic Importance of Financial Literacy: Theory and Evidence. J Econ Lit, 52(1), 5–44. https://doi.org/10.1257/jel.52.1.5. The
  19. Lusardi, A., & Tufano, P. (2009). No Title. Mandell, L., & Klein, L. S. (2009). The Impact of Financial Literacy Education on Subsequent Financial Behavior, (206), 15–24.
  20. Meir, A. D. I., Mugerman, Y., & Sade, O. (2016). Israel Economic Review Vol . 14 , No . 1 ( 2016 ), 75-95 FINANCIAL LITERACY AND RETIREMENT PLANNING : EVIDENCE FROM ISRAEL, 14(1), 75–95.
  21. Mutegi, H. K., Njeru, P. W., & Ongesa, N. T. (2015). Financial Literacy and Its Impact on Loan Repayment By Small and Medium Enterprenuers. International Journal of Economics, Commerce and Management, III(3), 1–28.
  22. Navarro-Martinez, D., Salisbury, L. C., Lemon, K. N., Stewart, N., Matthews, W. J., & Harris, A. J. . (2011). Minimum Required Payment and Supplemental Information Disclosure Effects on Consumer Debt Repayment Decisions. Journal of Marketing Research, 48(SPL), S60–S77. https://doi.org/10.1509/jmkr.48.SPL.S60
  23. Noctor, M., Stoney, S. and Stradling, R. (1992). Financial Literacy: A Discussion of Concepts and Competences of Financial Literacy and Opportunities for its Introduction into Young People’s Learning, Report prepared for the National Westminster Bank, National Foundation for Education Research, London.
  24. OECD. (2002). A n n u a l r e p o r t 2 0 0 2, 16.
  25. Oseifuah, E. K. (2015). Financial literacy and youth entrepreneurship in South Africa, (August). https://doi.org/10.1108/20400701011073473  Remund, D. L. (2010). Financial literacy explicated: The case for a clearer definition in an increasingly complex economy. Journal of Consumer Affairs, 44(2), 276–295. https://doi.org/10.1111/j.17456606.2010.01169.x
  26. Robb, C. A., & Woodyard, A. S. (2011). Financial Knowledge and Best Practice Behavior, (205), 60–70.
  27. Salisbury, L. C. (2014). Minimum Payment Warnings and Information Decisions. Journal of Public Policy & Marketing, 33(1), 49–64.
  28. Society, T. E. (2010). Selection and the Evolution of Industry Author ( s ): Boyan Jovanovic Published by : The Econometric Society Stable URL : http://www.jstor.org/stable/1912606, 50(3), 649–670.
  29. Spaliara, M. E., & Tsoukas, S. (2013). What matters for corporate failures in Asia? Exploring the role of firm-specific characteristics during the Asian crisis. Structural Change and Economic Dynamics, 26(August), 83–96. https://doi.org/10.1016/j.strueco.2012.12.002
  30. Tan, E. (2014). Human Capital Theory: A Holistic Criticism. Review of Educational Research, 84(3), 411–445. https://doi.org/10.3102/0034654314532696  Van Rooij, M. C. J., Lusardi, A., & Alessie, R. J. M. (2011). Financial literacy and retirement planning in the Netherlands. Journal of Economic Psychology, 32(4), 593–608. https://doi.org/10.1016/j.joep.2011.02.004
  31. Versloot, P. H., Praag, C. M. Van, & Versloot, P. H. (2007). What Is the Value of Entrepreneurship ? A Review of Recent Research, (3014).
  32. Wise, S. (2013). The Impact of Financial Literacy on New Venture Survival, 8(23), 30–39. https://doi.org/10.5539/ijbm.v8n23p30

Tools


Copyright © 2024  KITE Digital Educational Solutions |  Exclusively distributed by CE-Logic