|
|
|
| Financial Literacy in Small and Micro Enterprises and Innovation Consciousness and Vitality: An Empirical Analysis Based on the CMES Data |
| HUANG Yuhong, HUANG Lin
|
| Institute of Chinese Financial Studies / Research Institute of Economics and Management, Southwestern University of Finance and Economics |
|
|
|
Abstract Innovation is one of the twin engines promoting China's economic growth and structural transformation. Whether small and micro enterprises can adapt to innovation requirements and challenges in the market is key to determining their future development and even the direction of the overall economy. Considering that a typical characteristic of small and micro enterprises is highly integrated management rights and ownership, we explore whether innovation consciousness and vitality can be improved by enhancing the human capital endowment of entrepreneurs in addition to the external mechanisms of enhancing financial support, providing government subsidies, and reducing the tax burden. This study examines the important role of financial literacy in promoting innovation consciousness and vitality in small and micro enterprises from the perspective of human capital theory.
First, financial literacy reflects the individuals' understanding of the economic and financial environment and their decision-making abilities. Entrepreneurs with high financial literacy can better understand the laws of economic development and thus foresee market opportunities because it is crucial for entrepreneurs to recognize innovation opportunities and prospects. Therefore, high financial literacy can effectively enhance innovation consciousness. Second, the inhibiting effect of formal financial credit constraints on innovation vitality has been widely proved. Because of unfamiliarity with the products, processes, and related policies of formal credit, people tend to show less credit demand, which induces demand-restrained credit constraints. Financial literacy can effectively improve the understanding of formal financial products and services, thereby alleviating such credit constraints and promoting innovation vitality. Based on the above analysis, we believe that financial literacy, as an aspect of human capital, influences innovation consciousness through a market cognition mechanism and innovation vitality through a credit constraint mechanism.
Based on data from the China Small and Micro Enterprises Survey (CMES), we identify the understanding and calculation of interest rates, inflation, and investment risk among small and micro entrepreneurs, and construct a financial literacy indicator using factor analysis. The empirical results show that financial literacy significantly improves the innovation consciousness of small and micro enterprises. Entrepreneurs care more about the innovation and novation abilities of employees, and the innovation vitality of the enterprise is also effectively improved. These results hold when using entrepreneur training experience or attention to economic and financial information as proxy variables for financial literacy and endogeneity testing. We also find a lower impact of financial literacy on technological innovation vitality compared with other types of innovation because credit constraints are secondary to those of technology and personnel. Moreover, we distinguish the market environment using the Fangang total market index, non-state-owned economic development index, and financial marketization index to verify the different mechanisms of financial literacy on innovation consciousness and vitality. In areas with high marketization, good non-state-owned economic development, and high financial marketization, small and micro enterprises have strong innovation vitality and weak innovation consciousness. The main role of financial literacy is to promote innovation consciousness through enhancing the market cognition mechanism. In areas with low marketization, poor non-state-owned economic development, and low financial marketization, small and micro enterprises have strong innovation consciousness and weak innovation vitality. The role of financial literacy lies mainly in promoting innovation vitality, that is, through the mechanism of alleviating demand-restrained credit constraints.
The findings of this study provide insight into how to improve the innovation consciousness and vitality of small and micro enterprises in different market environments. Future work could explore the influence of financial literacy on innovation efficiency. Furthermore, as financial literacy can effectively alleviate demand-restrained credit constraints, we provide a new way of solving the financing difficulties of small and micro enterprises.
|
|
Published: 29 April 2019
|
|
|
|
|
|
|
|
