Behavioural Biases, Financial Literacy and SME Growth: The Mediating Role of Financial Literacy in Cameroon

Abstract

The study examines the effects of behavioural biases and financial literacy on the growth of small and medium-sized enterprises (SMEs) in the Southwest Region of Cameroon. Given the vital role SMEs play in economic development, it is imperative to understand the factors influencing their growth. Despite the crucial role of SMEs in Cameroon, the expansion of new branches and the introduction of innovative products still lag behind, with fewer than 15% of SMEs successfully entering new markets or launching new products each year. Data were gathered from 304 SME owners and managers using a structured questionnaire, providing insights into their views on risk and financial management techniques. The study employs a quantitative research approach, utilising multiple regression and structural equation modelling for statistical analysis to investigate the direct and mediated correlations between the variables under investigation. The results show that behavioural biases, particularly overconfidence, anchoring and regret aversion, positively and significantly influence the growth of SMEs. Financial literacy emerges as a critical facilitator of SME growth, with both financial knowledge and behaviour showing strong positive correlations with business expansion. Additionally, the study reveals that financial literacy acts as a mediator in the relationship between risk perception and SME growth, suggesting that effective financial management can mitigate some of the potential negative effects of Behavioural biases. This study contributes to the theoretical and empirical literature on SME development by delineating the complex interplay between psychological factors and financial acumen.