Moderating Effect of Financial Literacy on The Relationship Between Clan Culture and Financial Performance of SMEs in Nandi County, Kenya

Abstract

The main aim of this study is to examine the moderating role of financial literacy on the relationship between clan culture and the financial performance of Small and medium-sized enterprises. The study employed the Resource-Based View Theory, an explanatory research design, and cluster sampling techniques to collect data using a closed-ended questionnaire from a sample of 376 Small and Medium-Sized Enterprises. A Hierarchical regression model was used to test the study's hypotheses. The study findings indicate that Clan culture (β = 0.605, p = 0.000) and financial literacy (β = 0.456, p = 0.000) positively influence financial performance. In addition, the results reveal that financial literacy moderates the relationship between clan culture (β = -0.100, p = 0.000) and financial performance. Managers and owners of SMEs should recognize the importance of organizational culture in a firm's performance. They should create and implement an appropriate culture that fosters joint effort and mutual trust, ensuring high and sustainable performance for their SMEs. In addition, the moderation results reveal that managers in financially savvy businesses shouldn't depend entirely on clan culture for determining financial performance. On the contrary, they should combine data-driven practices or information with culture to enhance performance. The originality of this research paper lies in the moderation hypothesis. The moderation results contribute to theory and literature, as there are minimal studies that have been tested.