5.1. Discussion of the Findings
The aim of our research was to investigate the role of techno-finance literacy in SME performance. We used PLS-SEM to investigate the direct and indirect (via ERM practices) effect of techno-finance literacy on SME performance. Furthermore, we examined the direct influence of technological literacy and financial literacy on ERM practices of the SMEs. The conceptual framework and the seven hypotheses developed with a thorough literature review were the foundation of this study. Questionnaire development, sample selection, data collection, and analysis were done using scientific methods. The results show that both technological literacy and financial literacy have a positive effect on SME performance and ERM practices. Furthermore, ERM practices were observed as having a partial mediation effect on the relationship between financial literacy and SME performance. ERM practices also positively influenced SME performance.
The positive effect of technological literacy on SME performance is congruent with the results of Ashrafi and Murtaza [
41] and Iansiti and Lakhani [
42], who revealed a positive impact of technological literacy on SME performance. We recognized technological literacy as one of the important components of a firm’s knowledge resources and, therefore, our results agree with Carmeli and Tishler [
53], who revealed a positive association between knowledge resources and SME performance. Furthermore, technological literacy helps SMEs to cope up with the rapid changes of this digitalized business environment. Accordingly, results of this research are consistent with the findings of Nelson [
70], who proposed SMEs to adopt innovative mechanisms to boost their performance and facilitate navigating the digitalized business environment. Moreover, our results are in accordance with Bharadwaj [
95], who revealed that technological literacy can influence organizational practices and, therefore, affect SME performance. Furthermore, findings of this study are congruent with Liang and You [
96], who pointed out the prominence of technological literacy in enhancing the effectiveness of organizational communication, product design, and product development. However, it is challenging for SMEs in developing countries to introduce sophisticated technologies in their organizations due to many reasons. For instance, as explained by Fatoki [
97] many SMEs do not have internet, an e-mail address, or a website. Therefore, it is apparent that weak technological literacy in developing countries undermines SME performance and is a threat to their survival. Our findings suggest the necessity of having technologically literate CFOs to improve the performance of SMEs.
The lack of financial literacy was observed to be a pertinent barrier to SME performance by past researchers. The absence of financial literacy restricts SME financial accessibility, as well as badly affects their decision-making process. Our study revealed a positive impact of financial literacy on SME performance, and it is in accordance with Eniola and Entebang [
98], who found that financial literacy has a significant effect on SME performance. Furthermore, our results are congruent with those of Lusardi and Mitchell [
54], who revealed the need for higher financial literacy to identify financial aspects of business decisions. Moreover, financial literacy allows SMEs to cope with economic transitions, thus enhancing their performance. Our findings are also consistent with Carbo-Valverde and Rodriguez-Fernandez [
99], who pointed out the necessity of financial literacy to identify the most appropriate financial sources and to create a sound financial structure for the organization, which can improve performance. For instance, with higher financial literacy, SMEs can overcome the “equity gap” problem; hence, they can minimize interest expenses and collaterals when borrowing. As pointed out by Laitinen [
100], higher financial literacy aids SMEs to prepare timely, accurate, and relevant financial reports which strengthen the decision-making process and performance of SMEs. Thus, the positive relationship between financial literacy and SME performance, which we found with this study, further confirms the results of previous studies. Our findings reported a positive relationship between ERM practices and SME performance, which is congruent with the findings of Zou and Hassan [
67], who reported that ERM practices affect SME performances. Our results are also consistent with Agrawal [
69], who showed that risk management practices positively influence SME performance. Soin and Collier [
63] also observed that sound ERM practices enable SMEs to enhance their performance through the effective management of operational activities, assets, and information. Furthermore, our findings are also in accordance with Yilmaz and Flouris [
61], who identified the importance of sound ERM practices to foresee the threats and opportunities that arise with global economic changes and to develop compressive long-term plans and strategies in order to ensure organizational performance. Moreover, Jalal-Karim [
101] also reported the possibility of generating competitive advantages through sound ERM practices. However, Venkatraman and Fahd [
102] reported the absence of sound ERM practices as the main barrier to SME performance. Weaker ERM practices are challenging for SMEs to effectively control their operations and, thus, threaten performance. Overall, the empirical evidence suggests that SMEs with sound ERM practices have a better chance of successfully dealing with the modern business environment. Thus, our results are congruent with the results of Jalal-Karim [
101], who identified sound ERM practices as a competitive tool, which ensures SME performance.
In today’s business environment, technological changes bring lots of opportunities while creating a considerable amount of risk for the SMEs. Thus, it is necessary to identify those risks and take precautionary actions to ensure SME performance. Our results revealed a positive relationship between technological literacy and ERM practices, supporting the fourth hypothesis (H4). Our findings uphold the results of Limsarun [
71], who revealed a positive relationship between technological literacy and the performance of SMEs. Gutiérrez and Zuñiga [
72] also pointed out the fact that technological literacy enables SMEs to develop and implement sophisticated ERM systems, which have an influence on the strategic decision-making and operations of organizations. Furthermore, our findings are also compatible with the findings of Arena and Arnaboldi [
103], who found the significance of having higher technological literacy in establishing a sound internal control system for organizations. Moreover, as Kapurubandara and Lawson [
74] mentioned, technological literacy influences organizational policies, which encourage SMEs to implement sound ERM practices.
The influence of financial literacy on ERM practices in the SME context received only limited attention; thus, in this study, we endeavored to fill that gap by exploring the effect of financial literacy on ERM practices. Our findings show a significant influence of financial literacy on SME ERM practices, thus supporting our sixth hypothesis (H6). Our outcome corroborates the results of Mabula and Ping [
15], who posited that there is a positive relationship between financial literacy and ERM practices. Moreover, our findings are consistent with Smit and Watkins [
76], who highlighted the need for higher financial literacy to implement efficient ERM systems for organizations. Moreover, Beheshti [
77] also noted the necessity of financial literacy to link organizational strategies, policies, and procedures with the ERM system. Dionne and Triki [
79] showed the significance of higher financial literacy of top-level executives in developing risk management practices. Their finding is also in accordance with ours, as, being a top-level executive, a CFO’s financial literacy could influence the ERM practices of SMEs. Accordingly, higher financial literacy of SMEs enables them to strengthen their ERM practices, as it allows them to foresee the changes occurring in the business environment.
The mediating role of ERM practices in the relationship between financial literacy and SME performance is congruent with KBV [
8]. According to KBV, higher financial literacy strengthens the explicit and tacit knowledge of organizations, which is useful in developing sound ERM practices for organizations [
54]. This would facilitate SMEs to improve financial practices while minimizing the risks and costs, as well as strengthen SME performance. Our findings are also in line with Pierrakis and Collins [
104], who showed the importance of financial literacy to introduce secured online money transfer systems and improve credit scores of the organizations. Our findings are also congruent with the findings of Dionne and Triki [
79], who showed the necessity of having higher financial literacy in order to manage risks by adopting strong risk management practices. SMEs can expand their businesses if they can find new investors and financing strategies, as this allows them to overcome the financial accessibility problem. Thus, our findings are congruent with Pierrakis and Collins [
104], as financial literacy enabled them to find new financial sources and investors, which also enhanced SME performance. Financial literacy empowers top managers to implement new security and internal control systems in their organizations, thereby enhancing SME performance by avoiding fraud and errors. All in all, financial literacy influences SME performance via ERM practices. Our findings are in accordance with Eniola and Entebang [
105], who pointed out the possibility of financial literacy in enhancing organizational performance and providing competitive advantages. Our findings are also consistent with Bansal [
106], who noted that financial literacy enables SMEs to collect, evaluate, interpret, and share relevant and timely information efficiently and effectively, thereby improving SME performance. Accordingly, sound ERM practices are necessary for SMEs, as they directly and indirectly influence SME performance. Thus, our study extends the knowledge on techno-finance literacy and ERM practices by assessing new mechanisms that can augment the performance of the SMEs.
5.3. Implications for Managers
The significance of techno-finance literacy in the context of SME performance is two-fold. Firstly, techno-finance literacy directly influences SME performance. Secondly, techno-finance literacy directly influences ERM practices and, in turn, indirectly influences SME performance. Accordingly, possible managerial implications are discussed below, in order to ensure SME performance.
From the managerial perspective, regular training programs and seminars should be arranged to improve the knowledge on techno-finance literacy of the SMEs. Special attention is required in order to enhance the technological literacy of the accounting and finance staff of the SMEs, as this is helpful to implement sound ERM practices. Furthermore, considerable investment is needed to introduce new technology for SMEs, as this is vital to expand the SME’s target markets. However, SMEs are required to recruit well-qualified information technology (IT) specialists to enhance the technological literacy of their organizations. Moreover, without compromising on the IT and accounting staff of the organization, basic financial and technological training should also be given to other staff of the organization. When recruiting CFOs, SMEs should assess their technological knowledge on the basis of their accounting qualifications. Techno-finance-literate CFOs would have a greater chance of introducing sound ERM practices in the SMEs. Moreover, SMEs should gradually introduce more computerized work than paperwork in their organizations, as this would increase the operational efficiency and strengthen the internal control systems of the organizations. The top managers should also enhance their techno-finance literacy, as it empowers them to think “out of the box” when developing organizational strategies, policies, and procedures.
In this study, ERM practices were identified as an important determinant of SME performance. Top-level managers should consult both IT and finance specialists while developing ERM practices for their organizations. Furthermore, managers should recognize the competitive advantages gained through ERM practices, as these affect SME performance. Moreover, SMEs should endeavor to use technological approaches to identify and manage organizational risks. In other words, rather than manual ERM practices, computerized ERM practices would enhance SME performance. Given the importance of financial literacy to implement sound ERM practices, we recommend SMEs to organize more ERM-related programs for managers who are directly involved in the organizational decision-making process.
The contribution of other stakeholders like policymakers is also very important in the performance of SMEs in developing economies. Policymakers can organize seminars and training programs to enrich an SME’s techno-finance knowledge, as well as enhance the understanding of how new business opportunities arise in this digitalized business environment. Furthermore, policies can be introduced to encourage SMEs to transform their business into a digital business. For instance, governments can introduce new tax concessionaries and financial facilities for SMEs who introduce new technologies for their organizations. Government officers, specialized in IT, can be appointed to assist SMEs with digitalizing their organizations. Other third parties such as bankers can also motivate SMEs to use new technologies with their transactions. Moreover, policies introduced to ensure the security of paperless transactions would also help to save both time and cost of the business community. For instance, trust in Quick Response (QR) code systems would simplify business transactions. Furthermore, organizations such as central banks can introduce new secured financial-trade platforms by linking SMEs, bankers, and suppliers. This would assist SMEs to enhance their techno-finance literacy.