The Financial Knowledge-Entrepreneurial Success Nexus: Financial Well-Being as a Mediating Mechanism

Abstract

The study was carried out in the selected SMEs of Islamabad under different commercial activities of public, private, Islamic and international commercial sectors with licensed businesses registered with the Ministry of Trade and investment and Islamabad Local Government. Purposive sampling was used to ensure representation of manufacturing, services and retailing sectors and the sample size for the study was determined from Krejcie and Morgan's table. The data was gathered using a structured questionnaire which was distributed both in person and online, and which presented respondents with a five-point Likert scale for measuring their financial knowledge, financial wellbeing and entrepreneurial success. For reliability and validity testing, Cronbach's alpha, composite reliability, factor loading, and AVE methods were used, whereas regression analysis and SEM were used for direct and indirect effects analysis. The role of financial wellbeing as a mediator was tested using mediation analysis with bootstrapping. The results showed that the variance of entrepreneurial success can be accounted for by financial knowledge and that financial wellbeing is positively influenced by financial knowledge, explaining more than 61%. The effects of financial wellbeing on entrepreneurial success itself are significant; accounting for 67% of the variance. The mediation analysis indicated partial mediation, with the total effect of financial knowledge on entrepreneurial success being significant, and financial wellbeing strengthening the relationship between financial knowledge and entrepreneurial success. The results of this study provide strong evidence that financial knowledge serves as the groundwork, financial wellbeing as the enabling power and entrepreneurial success as the end result, which signifies the need for embedding financial literacy and financial wellbeing efforts to achieve greater entrepreneurial success in Pakistan.