FACTORS INFLUENCING SMES PERFORMANCE IN SAUDI ARABIA: MODERATING EFFECT OF ACCESS TO FINANCE

Abstract

In response to the challenges facing SMEs, including a lack of access to finance, a lack of management competency, and manager characteristics, this study aims to fill the literature gaps by proposing and validating the SMEs’ performance model based on the Resource-Based View theory (RBV). Drawing upon this theory, this study examines the moderating role of access to finance on the link between age, education, experience, training, Islamic religiosity, financial knowledge, and management competency on SMEs’ performance in Saudi Arabia. The current study adopted a quantitative method and rely on the cluster sampling method of data collection to divide the three regions into three clusters. This research relied on ownermanagers as the unit of analysis due to the unique characteristics of the SME context. A total of 576 owners and managers of manufacturing and retail/wholesale SMEs in three major cities in Saudi Arabia participated in the study. The Partial Least Square (SmartPLS 3.2) path analysis supported the hypothesized relationship. Specifically, Islamic religiosity and management competency were found to have a significant positive relation with SMEs’ performance. It was expected that age, education, experience, training, and financial knowledge would improve SMEs’ performance, but the finding of this study does not support this expectation, as experience and financial knowledge negatively influence SMEs’ performance. Interestingly, access to finance moderates the relation between age, Islamic religiosity and SMEs’ performance. Specifically, this relation is stronger for managers with high access to finance than for managers with low access to finance. Furthermore, the results indicate that the relation xvii between financial knowledge and SMEs’ performance was strongly negative for managers with high access to finance as opposed to managers with access to low levels of finance. Finally, the relationship between management competency and SMEs’ performance was less positive for managers with high access to finance than for managers with low access to finance. However, no moderating effect of access to finance was found on the path between training, education, experience, and SMEs’ performance. The results of this study provide important insights to owner-managers, policy-makers, and the government to further understand the factors influencing SMEs' performance. Owner-mangers of SMEs should emphasize management competency and Islamic religiosity; however, it is important to note that overconcentration on management competency may result in lower accessibility of financing. Policy-makers may channel the funds and consider the provision of grants to SMEs' managers with low access to finance to improve management competence encourage SMEs to improve their cash flow, profit, and retained earnings which may encourage financial institutions to provide them with financial services. The government should create appropriate education and training programs to help SMEs have not been successful. Lastly, the limitations of the current study and avenues for future research are discussed