Investigating the Relationship between Financial Literacy and Competitive Advantage in Small and Medium Enterprises (SMEs) with Emphasis on Business Risk Reduction Strategy.

Objective: Small and medium enterprises significantly lead to the improvement of economic and social systems and can make the economy stronger. Small and medium-sized companies contribute more to economic growth than large companies because they can respond to changes faster. However, the most important problem for the growth and competitiveness of small and medium enterprises in some developed and developing countries is the financing problem. From the point of view of starting a business, financial literacy is the ability to properly examine financial resources in the business life cycle, which is directly related to products and services. Financial literacy refers to the effectiveness of financial management decisions. Financial literacy requires knowledge, skill, attitude, and experience, and its purpose is to maintain the life of the company, maximize profit, maximize sales, gain market share, minimize employee turnover, minimize internal conflict, and maximize shareholder wealth. Financial literacy can be one of the strategic tools for optimal allocation of financial resources and financial strength of the company. Financial literacy is the proper knowledge of personal financial facts and the main factor in personal financial management. Competitive advantage is a situation that enables a company to offer higher quality products with higher efficiency and use superior methods and earn more profit in competition with competitors. Paying attention to the four factors of superior performance, quality, innovation and customer response, which helps the company to create and maintain a competitive advantage, is very important. Currently, due to the intensification of environmental complexity and competition, competitive advantage is either easily imitated by competitors or soon fades for customers. Accordingly, companies should think of replacing new advantages. The main goal of the organization is to create a competitive advantage by relying on the resources and capabilities it has, competitiveness and achieving a privileged position in the market. The results of empirical research show that financial literacy affects the performance of companies. With such an approach, this research examines the relationship between financial literacy and competitive advantage in small and medium-sized companies. Method: The current research is applied in terms of purpose, descriptive and correlational in terms of method, and survey and cross-sectional in terms of data collection method, and the data collection tool is a questionnaire. The current research questionnaire consists of two sections: general questions and specialized questions. Specialized questions include questions related to independent, mediating and dependent variables and include five dimensions of financial literacy, financial decisions, capital structure, risk management and competitive advantage. To measure the variables, the questionnaire taken from the study of Nuhong et al. (2019) was used and financial literacy with 5 items, financial decisions with 3 items, capital structure with 3 items, risk management with 3 items and competitive advantage with 5 items were evaluated. The statistics of the research are made up of small and medium companies in Yazd city, for sampling, a simple random sampling method was used, and to determine the sample size, Quakran's formula for structural equation modeling was used. Findings: The results of the analysis of 392 supplementary questionnaires using structural equation modeling in PLS software show that the mediating role of financial decisions, capital structure and risk management is accepted in the relationship between financial literacy and competitive advantage, and financial literacy comes from different channels including financial decisions, capital structure and risk management. It leads to the strengthening of competitive advantage. The results of the research are in line with the results of the studies of Kimando et al. (2016), Arinda (2019) and Ishtiaq et al. (2020) that financial literacy has a significant effect on the financial performance of companies. Also, the research results are consistent with the results of the studies of Nuhong et al. (2019), Resmi et al. (2019) and Resmi et al. (2021) that financial literacy leads to competitive advantage. Conclusion: According to the results, small and medium-sized companies are suggested to pay attention to the financial literacy of managers and company employees. In this regard, managers and employees can increase their financial literacy by studying financial resources. Also, familiarity with capital management tools and using these tools can help them. In addition, it is suggested that managers and employees actively participate in training courses related to financial literacy (face-to-face or online). Also, researchers are suggested to repeat this issue in other cities and pay attention to other factors affecting competitive advantage. [ABSTRACT FROM AUTHOR]

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