Author(s) :

Vipin Aggarwal and Ankush Bhargava.

Volume/Issue :

Abstract :

This paper attempts to highlight the rationality in the financial decision making of the SME’s financial managers that either leads to optimisation in financing activities of the SMEs or closures. Based on systematic review of literature various variables have been identified to study the financial behaviour of the managers of SMEs in India and a structured questionnaire have been constructed and studied on 257 Entrepreneurs/Financial Managers of SMEs in northern region of India, We found the relationship and impact of Demographics and Firm specific factors, Financial Attitude, Financial Knowledge and Financial Performance Measure on the financial management behaviour of the Financial Managers of Indian SMEs. The results reveal that financial knowledge is insignificant in terms of financial management behaviour of the manager and financial attitude is major component which governs the financial behaviour of the SMEs financial managers. Practically the results highlight the issue of financial rationality in the financial decision making of the Indian SMEs.

No. of Downloads :

23

KEYWORDS:

SMEs, Financial Behaviour, Qualitative Model, Financial Decision Making

INTRODUCTION & OBJECTIVES:

Small and medium sized enterprises (SMEs) have been popular to add significantly for the all-natural advancement a country. Nearly 95% of this corporations around the world are SMEs, plus they are the source of 60% of private employment (Ayyagari et al., 2007). SMEs play a vital role in preserving the economic health and wellness of developed and developing countries. In developing economies, SMEs focus on the static and effective face. Within the static front side, SMEs play a role in a country’s production and generate work, although on the other front, they serve as a nursery to large organizations, supply the subsequent level pertaining to growing micro-firms, and in addition gives a contribution to the nation’s GDP. India is one amongst the top emerging economies of Southeast Asia, and SMEs take into consideration 95% of the Indian Industrial Environment. In addition to this, SMEs provide occupation to an extremely huge and needy section of the society, and nurture international trade by promoting export and assisting and stimulating the nature of entrepreneurship. This kind of take noteworthy sociable and financial contribution of SMEs causes them to be one of the major drivers of Indian economy and motivates researchers to analyze these types of progress enablers in the framework of their financial progress and growth. Definitely, SMEs own tremendous potential, and to control the total energy of the SME’s, the financial environment of the SME sector must be studied extensively. Additionally, it is imperative to analyze modern day financing condition of Indian SMEs as even after adding 17% to India’s gross domestic product, the data reveals that SMEs are struggling to get money for their growth and expansion (Allen et al., 2012; Dalberg, 2010; Klapper, 2006; Thampy, 2010). This plainly indicates that deficiency of access to fund is definitely the main reason SMEs will be underdeveloped. Perhaps, due to this we emphasise that financial behaviour is an ability to analyse and work rationally in the fields of finance and various traditional approaches to study finance in case of SMEs stresses on the capital structure, financing etc. SME’s in India as found out in the study done by (Kanojia et al., 2020) have been still following a neo pecking order theory in financing themselves this creates a knowledge gap between the entrepreneurs and big firms. They usually tend to follow their own funds majorly to rely on financing, this study can be further understood on the behavioural grounds only as the gap of knowledge shows that entrepreneurs/financial managers of SMEs might be facing a tendency to behave irrationally in terms of financing their firms. So, this paper tries to attempt to bridge the gap and tries to find out if the behavior affects the financial decision making of the entrepreneurs. The learning of human psychology in understanding the financial decision making plays a key role especially in case of the smaller size firms as there is need to understand the rationality of financial concepts and their applicability in the SMEs where there is huge resource differential when compared to large firms. Thus, objectives of the study are in line with the same gap in case of SMEs in India. The objectives of the study are as follows: 1. To study variables which are related to the suggested financial decision making practices and to identify whether financial knowledge, financial attitude and financial performance measure influence financial decision making behaviour of Entrepreneurs/Financial Managers of SME’s. 2. To identify if the demographic variables such as Age, Investment, Turnover etc. influence the financial decision-making behaviour of Entrepreneurs/Financial Managers of SME’s.

DOI:

10.58426/cgi.v4.i1.2022.50-67