Casino Royale: A Comparative Analysis of Financial Literacy and Locus of Control on SMEs’ Financial Behavior

Knowledge is considered as the vital factor for firms in improving their capability and stability of SMEs, especially a financial literacy knowledge. Based on the literature, this study finds that due to lack of finance literacy knowledge, most of firms in Indonesia are not able to survive inside the business world that is full of competition and the dynamics of changing within particular periods. Unfortunately, lack of financial literacy knowledge also ultimately affects firms in Indonesia, particularly their financial behavior at both the organizational and individual levels, as well a locus of control of SME owners in controlling their business’s financial management. However, effective and efficient financial management behavior based on financial literacy knowledge and locus of control skills that are proportional to the context of firms tends to be something that is often overlooked by business people. Thus, a lot of literature indicates that almost all SMEs in Indonesia do not have adequate business financial performance reports as a condition for obtaining business loans from financial institutions. Therefore, with the support of the above issues, this study then aims to conduct a comparative study, through the approach of quantitative research method, from two major cities in Indonesia to explore and identify how much financial literacy and locus of control influence financial management behavior in 130 firms, which are small and medium-sized enterprises as sample size of this study. The findings of this study theoretically discover that financial literacy affects firm’s financial management behavior in both major cities of Indonesia, which are Makassar and Surabaya. The findings of this study are also expected to contribute positively to the managerial aspects, especially in providing detailed explanations and guidelines related to financial literacy, locus of control, and financial management behavior for policy makers as well as business owners. A detail recommendation for future research is also explained in the particular section of this paper.