Financial Literacy and the Financial Performance of SMEs in Oman: Examining the Mediating Role of Financial Behavior

Abstract

Financial literacy is associated with small and medium-sized enterprise (SME) performance, yet limited evidence explains how distinct financial capabilities relate to financial behavior and firm-level outcomes, particularly in Oman. This study examines the relationships among financial knowledge, financial communication, financial abilities, financial planning, financial behavior, and SME financial performance. Using a quantitative cross-sectional design, data were collected from 384 SME decision-makers in Oman and analyzed using partial least squares structural equation modeling (PLS-SEM) with 5,000 bootstrap resamples. All four financial-literacy dimensions were positively and significantly associated with financial behavior and SME financial performance. Financial behavior showed the strongest direct association with performance (β = .343), while financial abilities had the strongest capability-to-performance association (β = .234). Financial planning showed the strongest association with financial behavior (β = .279) and the largest indirect effect through financial behavior (β = .096). Financial behavior significantly mediated all four capability–performance relationships, indicating complementary partial mediation. The model explained 53.5% of the variance in financial behavior and 75.2% in SME financial performance. The findings highlight the importance of treating financial literacy as a multidimensional capability and translating financial capabilities into systematic financial-management practices.