The Mediating Role of Home Bias and Risk Preference, Influencing Financial Literacy in Minang Entrepreneur Funding Decisions in Indonesia

  • Henny Sulistianingsih, Ridwan Nurazi, Fitri Santi, Sigit Nugroho

Abstract

This study aims to explore the mediating role of risk preferences, home bias towards financial literacy in the funding decisions of Minangkabau ethnic Micro and Small Enterprises (SMEs). A theoretical framework was developed to determine financial literacy, risk preferences, and home bias in influencing the funding decisions of Minangkabau ethnic SMEs. The data were collected through online and offline survey techniques with a sample of 621 Minangkabau ethnic SMEs. Analysis using the SEM-PLS alternative. The results revealed that financial literacy and home bias do not directly influence funding decisions. Financial literacy does not directly affect risk preference. Financial literacy influences funding decisions when mediated by the variables of home bias and risk preference. The data show that the average level of financial literacy is low, with a tendency for a high home bias, this causes bias in assessing risk. The trend of increasing home bias results in misperceptions of risk results in misjudgment and takes on more risks than they can bear. Consequently, funding decisions for the purchase of raw materials or for expansion use funds with a maturity of 1-5 years. the source of these funds comes from friends, relatives, and formal funds (cooperatives and banks). These results reveal that there is a role for financial literacy, risk preference, and home bias in funding decisions.

Published
2021-02-26
Section
Articles