The behavioural dimension of SME’s owner on affecting the financial decisions
Abstract
This research seeks the effect of behavioural and non-behavioural factors of SME’s owners and their business characteristic on the financing decisions. Moreover, this research categorized SMEs owners based on their behavioural aspects on establishing a behavioural mapping in SMEs industry. The sample of this research is the informal SMEs owners in Surakarta, Central Java, Indonesia. In investigating the relationship of the independent variable on financial decision making, this research employed the hierarchical linear multiple regression model (HLMR) and multiple logistic regression (LR). Furthermore, this research employed cluster analysis for building a behavioural mapping in SMEs industry. This study discovered a significant effect of behavioural aspects of SME’s owners on the financing decisions, which is, instead of having significant enforcement on the financing decisions, the non-behavioural aspects were more likely impacted on the SMEs owners’ investment decisions. The finding shows that there are three significant groups of SMEs owners in the Surakarta region. The result of this research gives key insights, mainly to the involved stakeholder to keep the sustainability of the SMEs industry.
Keyword : capital structure, financial behavior, financial education, financing development, investment decisions
How to Cite
Raharja, B. S., Bachtiar, N. K., & Aziz, M. R. A. (2022). The behavioural dimension of SME’s owner on affecting the financial decisions. Business: Theory and Practice, 23(1), 60–69. https://doi.org/10.3846/btp.2022.13513
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
Alali, F., & Romero, S. (2013). Characteristics of failed U.S. commercial banks: An exploratory study. Accounting and Finance, 53(4), 1149–1174. https://doi.org/10.1111/j.1467-629X.2012.00491.x
Aren, S., & Zengin, A. N. (2016). Influence of financial literacy and risk perception on choice of investment. Procedia – Social and Behavioral Sciences, 235, 656–663. https://doi.org/10.1016/j.sbspro.2016.11.047
Arend, R. J. (2014). Entrepreneurship and dynamic capabilities: How firm age and size affect the “capability enhancement–SME performance” relationship. Small Business Economics, 42(1), 33–57. https://doi.org/10.1007/s11187-012-9461-9
Arya, S., Eckel, C., & Wichman, C. (2013). Anatomy of the credit score. Journal of Economic Behavior and Organization, 95, 175–185. https://doi.org/10.1016/j.jebo.2011.05.005
Awaluddin, M. (2015). Digital entrepreneurshift. PT Gramedia Pustaka Utama Jakarta.
Baker, H. K., Kumar, S., & Rao, P. (2020). Financing preferences and practices of Indian SMEs. Global Finance Journal, 43, 100388. https://doi.org/10.1016/j.gfj.2017.10.003
Bannier, C. E., & Schwarz, M. (2018). Gender- and education-related effects of financial literacy and confidence on financial wealth. Journal of Economic Psychology, 67, 66–86. https://doi.org/10.1016/j.joep.2018.05.005
Botta, M. (2019). Financing decisions and performance of Italian SMEs in the hotel industry. Cornell Hospitality Quarterly, 60(4), 335–354. https://doi.org/10.1177/1938965518816948
Cassar, G., & Holmes, S. (2003). Capital structure and financing of SMEs: Australian evidence. Accounting, 43(2), 123–147. https://doi.org/10.1111/1467-629X.t01-1-00085
Chijoriga, M. M. (2011). Application of multiple discriminant analysis (MDA) as a credit scoring and risk assessment model. International Journal of Emerging Markets, 6(2), 132–147. https://doi.org/10.1108/17468801111119498
Dong, Y., & Men, C. (2014). SME financing in emerging markets: Firm characteristics, banking structure and institutions. Emerging Markets Finance and Trade, 50(1), 120–149. https://doi.org/10.2753/REE1540-496X500107
Eckel, C. C., Johnson, C., Montmarquette, C., & Rojas, C. (2007). Debt aversion and the demand for loans for postsecondary education. Public Finance Review, 35(2), 233–262. https://doi.org/10.1177/1091142106292774
Ferrando, A., Popov, A., & Udell, G. F. (2017). Sovereign stress and SMEs’ access to finance: Evidence from the ECB’s SAFE survey. Journal of Banking and Finance, 81, 65–80. https://doi.org/10.1016/j.jbankfin.2017.04.012
Fujiki, H. (2020). Cash demand and financial literacy: A case study using Japanese survey data. Japan and the World Economy, 54, 100998. https://doi.org/10.1016/j.japwor.2020.100998
Galli, E., Mascia, D. V., & Rossi, S. P. S. (2019). Bank credit constraints for women‐led SMEs: Self‐restraint or lender bias? European Financial Management, 26(4), 1147–1188. https://doi.org/10.1111/eufm.12255
Garcia-Teruel, P. J., & Martinez-Solano, P. (2010). Determinants of trade credit: A comparative study of European SMEs. International Small Business Journal, 28(3), 215–233. https://doi.org/10.1177/0266242609360603
Ghafoorifard, M., Sheykh, B., Shakibaee, M., & Joshaghan, N. S. (2014). Assessing the relationship between firm size, age and financial performance in listed companies on Tehran stock exchange. International Journal of Scientific Management & Development, 2(11), 631–635. https://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=99978926&site=ehost-live
Grohmann, A. (2018). Financial literacy and financial behavior: Evidence from the emerging Asian middle class. Pacific-Basin Finance Journal, 48, 129–143. https://doi.org/10.1016/j.pacfin.2018.01.007
Gupta, J., & Gregoriou, A. (2018). Impact of market-based finance on SMEs failure. Economic Modelling, 69, 13–25. https://doi.org/10.1016/j.econmod.2017.09.004
Iturralde, T., Maseda, A., & San-Jose, L. (2010). Empirical evidence of banking relationships for Spanish SMEs. International Small Business Journal, 28(3), 274–295. https://doi.org/10.1177/0266242609360706
Jappelli, T., & Padula, M. (2013). Investment in financial literacy and saving decisions. Journal of Banking and Finance, 37(8), 2779–2792. https://doi.org/10.1016/j.jbankfin.2013.03.019
Jiang, J., Liao, L., Wang, Z., & Xiang, H. (2020). Financial literacy and retail investors’ financial welfare: Evidence from mutual fund investment outcomes in China. Pacific Basin Finance Journal, 59, 101242. https://doi.org/10.1016/j.pacfin.2019.101242
Karpavičius, S., & Yu, F. (2019). Managerial risk incentives and a firm’s financing policy. Journal of Banking and Finance, 100, 167–181. https://doi.org/10.1016/j.jbankfin.2019.01.013
Kon, Y., & Storey, D. J. (2003). A theory of discouraged borrowers. Small Business Economics, 21(1), 37–49. https://doi.org/10.1023/A:1024447603600
Ling, Y., Zhao, H., & Baron, R. A. (2007). Influence of founder CEOs’ personal values on firm performance: Moderating effects of firm age and size. Journal of Management, 33(5), 673–696. https://doi.org/10.1177/0149206307305564
LiPuma, J. A., Newbert, S. L., & Doh, J. P. (2013). The effect of institutional quality on firm export performance in emerging economies: A contingency model of firm age and size. Small Business Economics, 40, 817–841. https://doi.org/10.1007/s11187-011-9395-7
Loderer, C. F., & Waelchli, U. (2011). Firm age and performance. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1342248
Lusardi, A., Michaud, P., & Mitchell, O. S. (2019). Assessing the impact of financial education programs: A quantitative model. Economics of Education Review, 78, 101899. https://doi.org/10.1016/j.econedurev.2019.05.006
Maes, E., Dewaelheyns, N., Fuss, C., & Van Hulle, C. (2019). The impact of exporting on financial debt choices of SMEs. Journal of Business Research, 102, 56–73. https://doi.org/10.1016/j.jbusres.2019.05.008
McCarthy, S., Oliver, B., & Verreynne, M. L. (2017). Bank financing and credit rationing of Australian SMEs. Australian Journal of Management, 42(1), 58–85. https://doi.org/10.1177/0312896215587316
Mouna, A., & Anis, J. (2017). Financial literacy in Tunisia: Its determinants and its implications on investment behavior. Research in International Business and Finance, 39, 568–577. https://doi.org/10.1016/j.ribaf.2016.09.018
Mulyani, E., Singh, H., & Mishra, S. (2016). Dividends, leverage, and family ownership in the emerging Indonesian market. Journal of International Financial Markets, Institutions and Money, 43, 16–29. https://doi.org/10.1016/j.intfin.2016.03.004
Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have*. Journal of Financial Economics, 13(2), 187–221. https://doi.org/10.1016/0304-405X(84)90023-0
Netle, J. P. C., & Munger, M. C. (2016). The “Character” of profit and loss. In Questions of character. Oxford University Press. https://doi.org/10.1093/acprof:oso/9780199357703.003.0020
Nizaeva, M., & Coskun, A. (2019). Investigating the relationship between financial constraint and growth of SMEs in South Eastern Europe. SAGE Open, 9(3). https://doi.org/10.1177/2158244019876269
OECD. (2011). Measuring financial literacy: Questionnaire and guidance notes for conducting an internationally comparable survey of financial literacy. Organisation for Economic Cooperation and Development. https://www.oecd.org/finance/financial-education/49319977.pdf
Osei-Assibey, E., & Asenso, J. K. (2015). Regulatory capital and its effect on credit growth, non-performing loans and bank efficiency: Evidence from Ghana. Journal of Financial Economic Policy, 7(4), 401–420. https://doi.org/10.1108/JFEP-03-2015-0018
Raharja, B. S. (2012). Fenomena underpricing dan kinerja jangka panjang pada saat IPO: pengujian informasi asimetri. Universitas Gadjah Mada.
Raharja, B. S. (2014). Underpricing Pada Saat IPO: Pengujian Teori Asimetri Informasi. Jurnal Analisis Bisnis Dan Ekonomi, 12(2).
Raharja, B. S., & Mranani, M. (2019). The nonlinear effect of debt on firm performance: The evidence from Indonesia [Kesan tidak linear hutang terhadap prestasi firma: Bukti daripada Indonesia]. Jurnal Ekonomi Malaysia, 53(3). https://doi.org/10.17576/JEM-2019-5303-1
Raharja, B. S., Suhaeli, D., & Mranani, M. (2017). Did manager behave overconfidently? Financial Studies, 21(3).
Ramezani, C. A., Soenen, L., & Jung, A. (2002). Growth, corporate profitability, and value creation. Financial Analysts Journal, 58(6), 56–67. https://doi.org/10.2469/faj.v58.n6.2486
Rao, P., & Kumar, S. (2018). Reflection of owner’s attributes in financing decisions of SMEs. Small Enterprise Research, 25(1), 52–68. https://doi.org/10.1080/13215906.2018.1428908
Rao, P., Kumar, S., & Madhavan, V. (2019). A study on factors driving the capital structure decisions of Small and Medium Enterprises (SMEs) in India. IIMB Management Review, 31(1), 37–50. https://doi.org/10.1016/j.iimb.2018.08.010
Rooij, M. Van, Lusardi, A., & Alessie, R. (2011). Financial literacy and stock market participation. Journal of Financial Economics, 101(2), 449–472. https://doi.org/10.1016/j.jfineco.2011.03.006
Setyawan Agus, A., Isa, M., Wajdi, W. F. M., Syamsudin, & Nugroho Permono, S. (2015). An assessment of SME competitiveness in Indonesia. Journal of Competitiveness, 7(2), 60–74. https://doi.org/10.7441/joc.2015.02.04
Shleifer, A., & Vishny, R. W. (1986). Large shareholders and corporate control. Journal of Political Economy, 94(3), 461–488. https://doi.org/10.1086/261385
Situm, M. (2014). The age and size of the firm as relevant predictors for bankruptcy. Journal of Applied Economics and Business, 2(1), 5–30.
Sun, H., Yuen, D. C. Y., Zhang, J., & Zhang, X. (2020). Is knowledge powerful? Evidence from financial education and earnings quality. Research in International Business and Finance, 52, 101179. https://doi.org/10.1016/j.ribaf.2019.101179
Tambunan, T. (2009). Export-oriented small and medium industry clusters in Indonesia. Journal of Enterprising Communities, 3(1), 25–58. https://doi.org/10.1108/17506200910943661
Vithessonthi, C. (2016). Deflation, bank credit growth, and non-performing loans: Evidence from Japan. International Review of Financial Analysis, 45, 295–305. https://doi.org/10.1016/j.irfa.2016.04.003
Waharini, F. M., Raharja, B. S., & Kurnia, M. (2018). Pendampingan Sistem Pelaporan Keuangan Pada Badan Usaha Milik Desa (BUMDes) Karya Manunggal. Community Empowerment, 3(2), 45–48. https://doi.org/10.31603/ce.v3i2.2452
Zhang, Y., Jia, Q., Chen, C., & Yin, Z. (2020). Risk attitude, financial literacy and household consumption: Evidence from stock market crash in China. Economic Modelling, 94, 995–1006. https://doi.org/10.1016/j.econmod.2020.02.040
Aren, S., & Zengin, A. N. (2016). Influence of financial literacy and risk perception on choice of investment. Procedia – Social and Behavioral Sciences, 235, 656–663. https://doi.org/10.1016/j.sbspro.2016.11.047
Arend, R. J. (2014). Entrepreneurship and dynamic capabilities: How firm age and size affect the “capability enhancement–SME performance” relationship. Small Business Economics, 42(1), 33–57. https://doi.org/10.1007/s11187-012-9461-9
Arya, S., Eckel, C., & Wichman, C. (2013). Anatomy of the credit score. Journal of Economic Behavior and Organization, 95, 175–185. https://doi.org/10.1016/j.jebo.2011.05.005
Awaluddin, M. (2015). Digital entrepreneurshift. PT Gramedia Pustaka Utama Jakarta.
Baker, H. K., Kumar, S., & Rao, P. (2020). Financing preferences and practices of Indian SMEs. Global Finance Journal, 43, 100388. https://doi.org/10.1016/j.gfj.2017.10.003
Bannier, C. E., & Schwarz, M. (2018). Gender- and education-related effects of financial literacy and confidence on financial wealth. Journal of Economic Psychology, 67, 66–86. https://doi.org/10.1016/j.joep.2018.05.005
Botta, M. (2019). Financing decisions and performance of Italian SMEs in the hotel industry. Cornell Hospitality Quarterly, 60(4), 335–354. https://doi.org/10.1177/1938965518816948
Cassar, G., & Holmes, S. (2003). Capital structure and financing of SMEs: Australian evidence. Accounting, 43(2), 123–147. https://doi.org/10.1111/1467-629X.t01-1-00085
Chijoriga, M. M. (2011). Application of multiple discriminant analysis (MDA) as a credit scoring and risk assessment model. International Journal of Emerging Markets, 6(2), 132–147. https://doi.org/10.1108/17468801111119498
Dong, Y., & Men, C. (2014). SME financing in emerging markets: Firm characteristics, banking structure and institutions. Emerging Markets Finance and Trade, 50(1), 120–149. https://doi.org/10.2753/REE1540-496X500107
Eckel, C. C., Johnson, C., Montmarquette, C., & Rojas, C. (2007). Debt aversion and the demand for loans for postsecondary education. Public Finance Review, 35(2), 233–262. https://doi.org/10.1177/1091142106292774
Ferrando, A., Popov, A., & Udell, G. F. (2017). Sovereign stress and SMEs’ access to finance: Evidence from the ECB’s SAFE survey. Journal of Banking and Finance, 81, 65–80. https://doi.org/10.1016/j.jbankfin.2017.04.012
Fujiki, H. (2020). Cash demand and financial literacy: A case study using Japanese survey data. Japan and the World Economy, 54, 100998. https://doi.org/10.1016/j.japwor.2020.100998
Galli, E., Mascia, D. V., & Rossi, S. P. S. (2019). Bank credit constraints for women‐led SMEs: Self‐restraint or lender bias? European Financial Management, 26(4), 1147–1188. https://doi.org/10.1111/eufm.12255
Garcia-Teruel, P. J., & Martinez-Solano, P. (2010). Determinants of trade credit: A comparative study of European SMEs. International Small Business Journal, 28(3), 215–233. https://doi.org/10.1177/0266242609360603
Ghafoorifard, M., Sheykh, B., Shakibaee, M., & Joshaghan, N. S. (2014). Assessing the relationship between firm size, age and financial performance in listed companies on Tehran stock exchange. International Journal of Scientific Management & Development, 2(11), 631–635. https://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=99978926&site=ehost-live
Grohmann, A. (2018). Financial literacy and financial behavior: Evidence from the emerging Asian middle class. Pacific-Basin Finance Journal, 48, 129–143. https://doi.org/10.1016/j.pacfin.2018.01.007
Gupta, J., & Gregoriou, A. (2018). Impact of market-based finance on SMEs failure. Economic Modelling, 69, 13–25. https://doi.org/10.1016/j.econmod.2017.09.004
Iturralde, T., Maseda, A., & San-Jose, L. (2010). Empirical evidence of banking relationships for Spanish SMEs. International Small Business Journal, 28(3), 274–295. https://doi.org/10.1177/0266242609360706
Jappelli, T., & Padula, M. (2013). Investment in financial literacy and saving decisions. Journal of Banking and Finance, 37(8), 2779–2792. https://doi.org/10.1016/j.jbankfin.2013.03.019
Jiang, J., Liao, L., Wang, Z., & Xiang, H. (2020). Financial literacy and retail investors’ financial welfare: Evidence from mutual fund investment outcomes in China. Pacific Basin Finance Journal, 59, 101242. https://doi.org/10.1016/j.pacfin.2019.101242
Karpavičius, S., & Yu, F. (2019). Managerial risk incentives and a firm’s financing policy. Journal of Banking and Finance, 100, 167–181. https://doi.org/10.1016/j.jbankfin.2019.01.013
Kon, Y., & Storey, D. J. (2003). A theory of discouraged borrowers. Small Business Economics, 21(1), 37–49. https://doi.org/10.1023/A:1024447603600
Ling, Y., Zhao, H., & Baron, R. A. (2007). Influence of founder CEOs’ personal values on firm performance: Moderating effects of firm age and size. Journal of Management, 33(5), 673–696. https://doi.org/10.1177/0149206307305564
LiPuma, J. A., Newbert, S. L., & Doh, J. P. (2013). The effect of institutional quality on firm export performance in emerging economies: A contingency model of firm age and size. Small Business Economics, 40, 817–841. https://doi.org/10.1007/s11187-011-9395-7
Loderer, C. F., & Waelchli, U. (2011). Firm age and performance. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1342248
Lusardi, A., Michaud, P., & Mitchell, O. S. (2019). Assessing the impact of financial education programs: A quantitative model. Economics of Education Review, 78, 101899. https://doi.org/10.1016/j.econedurev.2019.05.006
Maes, E., Dewaelheyns, N., Fuss, C., & Van Hulle, C. (2019). The impact of exporting on financial debt choices of SMEs. Journal of Business Research, 102, 56–73. https://doi.org/10.1016/j.jbusres.2019.05.008
McCarthy, S., Oliver, B., & Verreynne, M. L. (2017). Bank financing and credit rationing of Australian SMEs. Australian Journal of Management, 42(1), 58–85. https://doi.org/10.1177/0312896215587316
Mouna, A., & Anis, J. (2017). Financial literacy in Tunisia: Its determinants and its implications on investment behavior. Research in International Business and Finance, 39, 568–577. https://doi.org/10.1016/j.ribaf.2016.09.018
Mulyani, E., Singh, H., & Mishra, S. (2016). Dividends, leverage, and family ownership in the emerging Indonesian market. Journal of International Financial Markets, Institutions and Money, 43, 16–29. https://doi.org/10.1016/j.intfin.2016.03.004
Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have*. Journal of Financial Economics, 13(2), 187–221. https://doi.org/10.1016/0304-405X(84)90023-0
Netle, J. P. C., & Munger, M. C. (2016). The “Character” of profit and loss. In Questions of character. Oxford University Press. https://doi.org/10.1093/acprof:oso/9780199357703.003.0020
Nizaeva, M., & Coskun, A. (2019). Investigating the relationship between financial constraint and growth of SMEs in South Eastern Europe. SAGE Open, 9(3). https://doi.org/10.1177/2158244019876269
OECD. (2011). Measuring financial literacy: Questionnaire and guidance notes for conducting an internationally comparable survey of financial literacy. Organisation for Economic Cooperation and Development. https://www.oecd.org/finance/financial-education/49319977.pdf
Osei-Assibey, E., & Asenso, J. K. (2015). Regulatory capital and its effect on credit growth, non-performing loans and bank efficiency: Evidence from Ghana. Journal of Financial Economic Policy, 7(4), 401–420. https://doi.org/10.1108/JFEP-03-2015-0018
Raharja, B. S. (2012). Fenomena underpricing dan kinerja jangka panjang pada saat IPO: pengujian informasi asimetri. Universitas Gadjah Mada.
Raharja, B. S. (2014). Underpricing Pada Saat IPO: Pengujian Teori Asimetri Informasi. Jurnal Analisis Bisnis Dan Ekonomi, 12(2).
Raharja, B. S., & Mranani, M. (2019). The nonlinear effect of debt on firm performance: The evidence from Indonesia [Kesan tidak linear hutang terhadap prestasi firma: Bukti daripada Indonesia]. Jurnal Ekonomi Malaysia, 53(3). https://doi.org/10.17576/JEM-2019-5303-1
Raharja, B. S., Suhaeli, D., & Mranani, M. (2017). Did manager behave overconfidently? Financial Studies, 21(3).
Ramezani, C. A., Soenen, L., & Jung, A. (2002). Growth, corporate profitability, and value creation. Financial Analysts Journal, 58(6), 56–67. https://doi.org/10.2469/faj.v58.n6.2486
Rao, P., & Kumar, S. (2018). Reflection of owner’s attributes in financing decisions of SMEs. Small Enterprise Research, 25(1), 52–68. https://doi.org/10.1080/13215906.2018.1428908
Rao, P., Kumar, S., & Madhavan, V. (2019). A study on factors driving the capital structure decisions of Small and Medium Enterprises (SMEs) in India. IIMB Management Review, 31(1), 37–50. https://doi.org/10.1016/j.iimb.2018.08.010
Rooij, M. Van, Lusardi, A., & Alessie, R. (2011). Financial literacy and stock market participation. Journal of Financial Economics, 101(2), 449–472. https://doi.org/10.1016/j.jfineco.2011.03.006
Setyawan Agus, A., Isa, M., Wajdi, W. F. M., Syamsudin, & Nugroho Permono, S. (2015). An assessment of SME competitiveness in Indonesia. Journal of Competitiveness, 7(2), 60–74. https://doi.org/10.7441/joc.2015.02.04
Shleifer, A., & Vishny, R. W. (1986). Large shareholders and corporate control. Journal of Political Economy, 94(3), 461–488. https://doi.org/10.1086/261385
Situm, M. (2014). The age and size of the firm as relevant predictors for bankruptcy. Journal of Applied Economics and Business, 2(1), 5–30.
Sun, H., Yuen, D. C. Y., Zhang, J., & Zhang, X. (2020). Is knowledge powerful? Evidence from financial education and earnings quality. Research in International Business and Finance, 52, 101179. https://doi.org/10.1016/j.ribaf.2019.101179
Tambunan, T. (2009). Export-oriented small and medium industry clusters in Indonesia. Journal of Enterprising Communities, 3(1), 25–58. https://doi.org/10.1108/17506200910943661
Vithessonthi, C. (2016). Deflation, bank credit growth, and non-performing loans: Evidence from Japan. International Review of Financial Analysis, 45, 295–305. https://doi.org/10.1016/j.irfa.2016.04.003
Waharini, F. M., Raharja, B. S., & Kurnia, M. (2018). Pendampingan Sistem Pelaporan Keuangan Pada Badan Usaha Milik Desa (BUMDes) Karya Manunggal. Community Empowerment, 3(2), 45–48. https://doi.org/10.31603/ce.v3i2.2452
Zhang, Y., Jia, Q., Chen, C., & Yin, Z. (2020). Risk attitude, financial literacy and household consumption: Evidence from stock market crash in China. Economic Modelling, 94, 995–1006. https://doi.org/10.1016/j.econmod.2020.02.040