The mediating effect of entrepreneurial orientation on the relationship of financial literacy and leadership styles with business performance of SMEs in Malaysia

Abstract

Business Performance (BP) of SMEs in Malaysia has been the centre of focus of many research due to its importance. The aim of this study is to study the effects of entrepreneurial orientation (EO), entrepreneur financial literacy (EFL) and leadership styles (LS) over the business performances (BP) in SME in Malaysia. A theoretical model based on Full Range Leadership (FRL) and Resource Based View (RBV) approach to the business performance of SMEs was developed. To answer the research questions, seven hypotheses were formulated. These are; (i) There is a positive relationship between LS and BP (ii) There is a positive relationship between EFL and BP (iii) There is a positive relationship between EO and BP (iv) There is a positive relationship between EFL and EO. (v) There is a positive relationship between LS and EO (vi) EO mediates the relationship between LS and BP (vii) EO mediates the relationship between EFL and BP. A quantitative survey method was employed in the study, and the questionnaires were used to obtain the data from the owner/managers of women owned SMEs. A total of 240 usable questionnaires were obtained from the survey, giving an adjusted response rate of 53 percent. Data were analysed using Structural Equation Modelling (SEM) to test the direct and indirect relationships. The findings indicated that the direct relationships between EFL and BP, between EO and BP, and between EFL and EO were supported. The finding also confirms the mediating effect of EO on the relationship between EFL and BP, while there is no mediating effect of EO on the the relationship between LS and BP. More importantly, the results have demonstrated supportive evidence of the theoretical model of RBV, which provides an explanation on the relationships between LS, EO and EFL, and how these variables affect performance of SMEs. The findings offered several theoretical and practical implications to owner/managers of SMEs and also to the policy makers. The limitations of study and recommendations for future research were also addressed. Keywords: SMEs, Entrepreneurial Orientation, Business Performance and Entrepreneur Financial Literacy