literature review of financial management

To read this content please select one of the options below:

Please note you do not have access to teaching notes, antecedents and consequences of personal financial management behavior: a systematic literature review and future research agenda.

International Journal of Bank Marketing

ISSN : 0265-2323

Article publication date: 1 June 2021

Issue publication date: 28 October 2021

The purpose of this paper is to investigate the current state of research on Personal Financial Management Behavior (PFMB), with a prime focus on its antecedents and the consequences. By analyzing the research trends, methods, determinants and outcomes, the PFMB literature is synthesized, and agenda for future research is suggested. A framework is presented that portrays PFMB's antecedents and consequences and further specification of the mediation and moderation linkages.

Design/methodology/approach

The review is based on 160 articles published during 1970–2020. It follows a systematic approach and presents the definitions and theories of PFMB, publication trends based on time, region, sample population, research designs, data collection and analysis techniques, along with antecedents and outcomes through content analysis.

The synthesis draws upon various factors affecting PFMB, such as demographics, socio-economic, psychological, social, cultural, financial experience, financial literacy (FL) and technological factors. The prominent outcomes of PFMB include financial satisfaction, relationship satisfaction, quality of life, financial success, happiness, financial vulnerability/resilience and financial well-being. The future research agenda sums up the recommendations in the form of research questions on variables and their linkages, followed by methodological advancements.

Originality/value

This paper covers the scholarly work done in this area in the past 51 years. To the best of authors' knowledge, this is the first attempt to offer a most comprehensive and collective scholarship of this subject. It further gives an extensive future research agenda.

• Systematic literature review
• Personal financial management behavior
• Financial management behavior
• Financial behavior

Goyal, K. , Kumar, S. and Xiao, J.J. (2021), "Antecedents and consequences of Personal Financial Management Behavior: a systematic literature review and future research agenda", International Journal of Bank Marketing , Vol. 39 No. 7, pp. 1166-1207. https://doi.org/10.1108/IJBM-12-2020-0612

Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

Related articles

We’re listening — tell us what you think, something didn’t work….

Report bugs here

All feedback is valuable

Please share your general feedback

Join us on our journey

Platform update page.

Visit emeraldpublishing.com/platformupdate to discover the latest news and updates

Questions & More Information

Answers to the most commonly asked questions here

Academia.edu no longer supports Internet Explorer.

To browse Academia.edu and the wider internet faster and more securely, please take a few seconds to  upgrade your browser .

Enter the email address you signed up with and we'll email you a reset link.

• We're Hiring!
• Help Center

The Best Practices of Financial Management in Education: A Systematic Literature Review

2023, International Journal of Research and Innovation in Social Science

This study explored the literature on the best practices of Financial Management in Education utilizing a systematic review analysis design. This study aimed to answer the following questions: 1. The demographic data in the existing literature on the the best practices of Financial Management in Education in terms of country, research design, and the number of participants. 2. The best practices of Financial Management in Education, and 3. Suggestions for further research can be identified by exploring the current literature on an educational strategic direction based on the elements of financial management. As a result of the systematic analysis showed themes on the best practices of Financial Management in Education as According to the demographics of the literature, Western countries and Southeast Asia conducted very few studies on best practices of financial management in education Therefore, this integrated and systematic study of the educational literature on the best practices and financial management sought to identify the key best practices of financial management in education. Finally, we hope that the framework offered by this study and the overview of the difficulties presented here will help to improve school leaders' practices in strategic financial management and serve as the basis for future research and policy decisions.

Related Papers

Chimuka Nachibinga

CERN European Organization for Nuclear Research - Zenodo

Burman Sithole

Social and Management Research Journal

Norliza Che Yahya

This paper discusses the modernisation effort in financial management (FM) practices and income diversification strategies of higher education institutions (HEIs) in Southeast Asia. This effort and strategies attempt to enhance human, organisational and technical capacities of HEIs in Southeast Asia through systematisation and promotion of good practices. Furthermore, the modernisation effort of FM is also to promote regional integration through the creation of a network amongst financial managers pursuing modernisation in FM systems and practices. The data related to economic and social indicators, are provided by six HEIs in Southeast Asian countries (Indonesia, Thailand and Malaysia). The gathered data were scrutinised to initiate both macro and micro analyses. The six participated HEIs, filled-up a macro and micro observation template. The macro data was sourced from the World Bank database and Ministry of Higher Education. Meanwhile for the micro data, information on the financial management of a university was sourced by each participated HEI. The collected information, covering the period from 2013-2015 includes several socioeconomic indicators such as GDP per capita, population and unemployment rate of a country and the HEI's specific information on financial management

Journal of Education, Society and Behavioural Science

ONESMO AMOS

The main objective of this study was to evaluate the effectiveness of school heads’ financial management skills in the provision of quality education in secondary schools. This study explored secondary data by reviewing documents and literature materials from online publications and libraries to attain the intended purpose of the study. The study found out that financial management skills such as mobilizing school funds, monitoring, evaluation of budget, and auditing skills were essential for school financial management. The study also found that most of the school heads possess insufficient skills in financial management as school managers. Other financial management challenges were a shortage of school funds, poor monitoring, evaluation, and auditing of school finances. The study suggests strategies such as capacity building among the school heads. Also, decentralization of financial decision making, relevant school mission, and vision, enhance effective monitoring, evaluation, an...

Dr.khurshed iqbal

Abstract The objective of the study is to assess financial Management skills among the university level students enrolled in different universities and colleges in Peshawar city by employing both t-tests and Analyses of Variances (ANOVA). Six universities (three public sectors and three private sectors) and five private sector business and management sciences colleges were selected randomly for this research study. By and large the results of the study based on the total mean score male students have more financial management skills than female students. There was a significant difference in the financial management skills both students of public and private universities and colleges. Students of public sector universities and colleges have higher financial management skills score (Mean 39.05) than students of private sector universities and colleges score (Mean 38.01).

Zenodo (CERN European Organization for Nuclear Research)

Nathaniel Gido

Carolina Lita Permatasari

Financial literacy is an important part of the realization of student management in relation to improving financial literacy so that it creates knowledge and behavior in financial management that has been carried out so far. Students need to realize financial management by increasing financial literacy which is what they learn during lectures. Therefore, students are able to carry out financial management with the existence of financial literacy. This research was conducted at the SWCU FKIP Economic Education using a qualitative method with a snowball sampling technique and with data collection techniques, namely primary data, interviews and documentation, which aims to determine student literacy towards financial management of SWCU FKIP economic education students. The results of this study indicate that students already understand the basics of finance but there are several things that must be underlined in financial literacy, namely knowledge of investment and insurance which is ...

The purpose of this study was to determine the school's financial management strategy for improving the quality of education in Islamic Senior High School Ukhuwah Banjarmasin. This research uses a qualitative approach with the type of case study, taking the research location at the Islamic Senior High School Ukhuwah Banjarmasin. Data collection methods were carried out by 1) Interviews; 2) Observation; 3) Documentation. The analysis technique uses Miles and Huberman's interactive analysis model: data reduction, data presentation, and conclusion drawing. Meanwhile, checking the validity of the data was carried out by extending the research time and persistence in observing, triangulating, and using references. The research findings show that the school's financial planning strategy in improving the quality of education at the Islamic Senior High School Ukhuwah Banjarmasin through a) Conducting meetings at the beginning of the school year; b) Formulating programs; c) Estab...

African Journal of …

Leila Falahati

Nur Syakirah

RELATED PAPERS

Diego Guillermo

EPJ Web of Conferences

Roberto De Luca

Proceedings of the 2007 ACM SIGMOD international conference on Management of data

Shivam Kumar

American journal of obstetrics and gynecology

Roseline Ochieng

Thomas Ramin

Stephen Reynolds

Mastozool. neotrop

Rubén Barquez

MRS Proceedings

Joseph Curtis

Sensors (Basel, Switzerland)

Houbing Song

arXiv (Cornell University)

Abdullah Harmanci

International Urology and Nephrology

Caterina Fanizza

Metabolites

Gary Perdew

E3S Web of Conferences

Jurnal Teknik Ilmu Dan Aplikasi

saddani djulihenanto

Biology of Blood and Marrow Transplantation

Javier Bolaños Meade

Kyu Hyun Jo

Qualitative Research

Rebecca Dimond

Critical Care Medicine

Christine Holzmueller

仿制查尔斯达尔文大学毕业证 cdu毕业证文凭毕业证文凭学历认证原版一模一样

International Journal of Computing

Mohd Abdollah

RELATED TOPICS

•   We're Hiring!
•   Help Center
• Find new research papers in:
• Health Sciences
• Earth Sciences
• Cognitive Science
• Mathematics
• Computer Science
• Academia ©2024

• Open access
• Published: 03 September 2022

A literature review of risk, regulation, and profitability of banks using a scientometric study

• Shailesh Rastogi 1 ,
• Arpita Sharma 1 ,
• Geetanjali Pinto 2 &
• Venkata Mrudula Bhimavarapu   ORCID: orcid.org/0000-0002-9757-1904 1 , 3  

Future Business Journal volume  8 , Article number:  28 ( 2022 ) Cite this article

12k Accesses

1 Citations

Metrics details

This study presents a systematic literature review of regulation, profitability, and risk in the banking industry and explores the relationship between them. It proposes a policy initiative using a model that offers guidelines to establish the right mix among these variables. This is a systematic literature review study. Firstly, the necessary data are extracted using the relevant keywords from the Scopus database. The initial search results are then narrowed down, and the refined results are stored in a file. This file is finally used for data analysis. Data analysis is done using scientometrics tools, such as Table2net and Sciences cape software, and Gephi to conduct network, citation analysis, and page rank analysis. Additionally, content analysis of the relevant literature is done to construct a theoretical framework. The study identifies the prominent authors, keywords, and journals that researchers can use to understand the publication pattern in banking and the link between bank regulation, performance, and risk. It also finds that concentration banking, market power, large banks, and less competition significantly affect banks’ financial stability, profitability, and risk. Ownership structure and its impact on the performance of banks need to be investigated but have been inadequately explored in this study. This is an organized literature review exploring the relationship between regulation and bank performance. The limitations of the regulations and the importance of concentration banking are part of the findings.

Introduction

Globally, banks are under extreme pressure to enhance their performance and risk management. The financial industry still recalls the ignoble 2008 World Financial Crisis (WFC) as the worst economic disaster after the Great Depression of 1929. The regulatory mechanism before 2008 (mainly Basel II) was strongly criticized for its failure to address banks’ risks [ 47 , 87 ]. Thus, it is essential to investigate the regulation of banks [ 75 ]. This study systematically reviews the relevant literature on banks’ performance and risk management and proposes a probable solution.

Issues of performance and risk management of banks

Banks have always been hailed as engines of economic growth and have been the axis of the development of financial systems [ 70 , 85 ]. A vital parameter of a bank’s financial health is the volume of its non-performing assets (NPAs) on its balance sheet. NPAs are advances that delay in payment of interest or principal beyond a few quarters [ 108 , 118 ]. According to Ghosh [ 51 ], NPAs negatively affect the liquidity and profitability of banks, thus affecting credit growth and leading to financial instability in the economy. Hence, healthy banks translate into a healthy economy.

Despite regulations, such as high capital buffers and liquidity ratio requirements, during the second decade of the twenty-first century, the Indian banking sector still witnessed a substantial increase in NPAs. A recent report by the Indian central bank indicates that the gross NPA ratio reached an all-time peak of 11% in March 2018 and 12.2% in March 2019 [ 49 ]. Basel II has been criticized for several reasons [ 98 ]. Schwerter [ 116 ] and Pakravan [ 98 ] highlighted the systemic risk and gaps in Basel II, which could not address the systemic risk of WFC 2008. Basel III was designed to close the gaps in Basel II. However, Schwerter [ 116 ] criticized Basel III and suggested that more focus should have been on active risk management practices to avoid any impending financial crisis. Basel III was proposed to solve these issues, but it could not [ 3 , 116 ]. Samitas and Polyzos [ 113 ] found that Basel III had made banking challenging since it had reduced liquidity and failed to shield the contagion effect. Therefore, exploring some solutions to establish the right balance between regulation, performance, and risk management of banks is vital.

Keeley [ 67 ] introduced the idea of a balance among banks’ profitability, regulation, and NPA (risk-taking). This study presents the balancing act of profitability, regulation, and NPA (risk-taking) of banks as a probable solution to the issues of bank performance and risk management and calls it a triad . Figure  1 illustrates the concept of a triad. Several authors have discussed the triad in parts [ 32 , 96 , 110 , 112 ]. Triad was empirically tested in different countries by Agoraki et al. [ 1 ]. Though the idea of a triad is quite old, it is relevant in the current scenario. The spirit of the triad strongly and collectively admonishes the Basel Accord and exhibits new and exhaustive measures to take up and solve the issue of performance and risk management in banks [ 16 , 98 ]. The 2008 WFC may have caused an imbalance among profitability, regulation, and risk-taking of banks [ 57 ]. Less regulation , more competition (less profitability ), and incentive to take the risk were the cornerstones of the 2008 WFC [ 56 ]. Achieving a balance among the three elements of a triad is a real challenge for banks’ performance and risk management, which this study addresses.

Triad of Profitability, regulation, and NPA (risk-taking). Note The triad [ 131 ] of profitability, regulation, and NPA (risk-taking) is shown in Fig.  1

Triki et al. [ 130 ] revealed that a bank’s performance is a trade-off between the elements of the triad. Reduction in competition increases the profitability of banks. However, in the long run, reduction in competition leads to either the success or failure of banks. Flexible but well-expressed regulation and less competition add value to a bank’s performance. The current review paper is an attempt to explore the literature on this triad of bank performance, regulation, and risk management. This paper has the following objectives:

To systematically explore the existing literature on the triad: performance, regulation, and risk management of banks; and

To propose a model for effective bank performance and risk management of banks.

Literature is replete with discussion across the world on the triad. However, there is a lack of acceptance of the triad as a solution to the woes of bank performance and risk management. Therefore, the findings of the current papers significantly contribute to this regard. This paper collates all the previous studies on the triad systematically and presents a curated view to facilitate the policy makers and stakeholders to make more informed decisions on the issue of bank performance and risk management. This paper also contributes significantly by proposing a DBS (differential banking system) model to solve the problem of banks (Fig.  7 ). This paper examines studies worldwide and therefore ensures the wider applicability of its findings. Applicability of the DBS model is not only limited to one nation but can also be implemented worldwide. To the best of the authors’ knowledge, this is the first study to systematically evaluate the publication pattern in banking using a blend of scientometrics analysis tools, network analysis tools, and content analysis to understand the link between bank regulation, performance, and risk.

This paper is divided into five sections. “ Data and research methods ” section discusses the research methodology used for the study. The data analysis for this study is presented in two parts. “ Bibliometric and network analysis ” section presents the results obtained using bibliometric and network analysis tools, followed by “ Content Analysis ” section, which presents the content analysis of the selected literature. “ Discussion of the findings ” section discusses the results and explains the study’s conclusion, followed by limitations and scope for further research.

Data and research methods

A literature review is a systematic, reproducible, and explicit way of identifying, evaluating, and synthesizing relevant research produced and published by researchers [ 50 , 100 ]. Analyzing existing literature helps researchers generate new themes and ideas to justify the contribution made to literature. The knowledge obtained through evidence-based research also improves decision-making leading to better practical implementation in the real corporate world [ 100 , 129 ].

As Kumar et al. [ 77 , 78 ] and Rowley and Slack [ 111 ] recommended conducting an SLR, this study also employs a three-step approach to understand the publication pattern in the banking area and establish a link between bank performance, regulation, and risk.

Determining the appropriate keywords for exploring the data

Many databases such as Google Scholar, Web of Science, and Scopus are available to extract the relevant data. The quality of a publication is associated with listing a journal in a database. Scopus is a quality database as it has a wider coverage of data [ 100 , 137 ]. Hence, this study uses the Scopus database to extract the relevant data.

For conducting an SLR, there is a need to determine the most appropriate keywords to be used in the database search engine [ 26 ]. Since this study seeks to explore a link between regulation, performance, and risk management of banks, the keywords used were “risk,” “regulation,” “profitability,” “bank,” and “banking.”

Initial search results and limiting criteria

Using the keywords identified in step 1, the search for relevant literature was conducted in December 2020 in the Scopus database. This resulted in the search of 4525 documents from inception till December 2020. Further, we limited our search to include “article” publications only and included subject areas: “Economics, Econometrics and Finance,” “Business, Management and Accounting,” and “Social sciences” only. This resulted in a final search result of 3457 articles. These results were stored in a.csv file which is then used as an input to conduct the SLR.

Data analysis tools and techniques

This study uses bibliometric and network analysis tools to understand the publication pattern in the area of research [ 13 , 48 , 100 , 122 , 129 , 134 ]. Some sub-analyses of network analysis are keyword word, author, citation, and page rank analysis. Author analysis explains the author’s contribution to literature or research collaboration, national and international [ 59 , 99 ]. Citation analysis focuses on many researchers’ most cited research articles [ 100 , 102 , 131 ].

The.csv file consists of all bibliometric data for 3457 articles. Gephi and other scientometrics tools, such as Table2net and ScienceScape software, were used for the network analysis. This.csv file is directly used as an input for this software to obtain network diagrams for better data visualization [ 77 ]. To ensure the study’s quality, the articles with 50 or more citations (216 in number) are selected for content analysis [ 53 , 102 ]. The contents of these 216 articles are analyzed to develop a conceptual model of banks’ triad of risk, regulation, and profitability. Figure  2 explains the data retrieval process for SLR.

Data retrieval process for SLR. Note Stepwise SLR process and corresponding results obtained

Bibliometric and network analysis

Figure  3 [ 58 ] depicts the total number of studies that have been published on “risk,” “regulation,” “profitability,” “bank,” and “banking.” Figure  3 also depicts the pattern of the quality of the publications from the beginning till 2020. It undoubtedly shows an increasing trend in the number of articles published in the area of the triad: “risk” regulation” and “profitability.” Moreover, out of the 3457 articles published in the said area, 2098 were published recently in the last five years and contribute to 61% of total publications in this area.

Articles published from 1976 till 2020 . Note The graph shows the number of documents published from 1976 till 2020 obtained from the Scopus database

Source of publications

A total of 160 journals have contributed to the publication of 3457 articles extracted from Scopus on the triad of risk, regulation, and profitability. Table 1 shows the top 10 sources of the publications based on the citation measure. Table 1 considers two sets of data. One data set is the universe of 3457 articles, and another is the set of 216 articles used for content analysis along with their corresponding citations. The global citations are considered for the study from the Scopus dataset, and the local citations are considered for the articles in the nodes [ 53 , 135 ]. The top 10 journals with 50 or more citations resulted in 96 articles. This is almost 45% of the literature used for content analysis ( n  = 216). Table 1 also shows that the Journal of Banking and Finance is the most prominent in terms of the number of publications and citations. It has 46 articles published, which is about 21% of the literature used for content analysis. Table 1 also shows these core journals’ SCImago Journal Rank indicator and H index. SCImago Journal Rank indicator reflects the impact and prestige of the Journal. This indicator is calculated as the previous three years’ weighted average of the number of citations in the Journal since the year that the article was published. The h index is the number of articles (h) published in a journal and received at least h. The number explains the scientific impact and the scientific productivity of the Journal. Table 1 also explains the time span of the journals covering articles in the area of the triad of risk, regulation, and profitability [ 7 ].

Figure  4 depicts the network analysis, where the connections between the authors and source title (journals) are made. The network has 674 nodes and 911 edges. The network between the author and Journal is classified into 36 modularities. Sections of the graph with dense connections indicate high modularity. A modularity algorithm is a design that measures how strong the divided networks are grouped into modules; this means how well the nodes are connected through a denser route relative to other networks.

Network analysis between authors and journals. Note A node size explains the more linked authors to a journal

The size of the nodes is based on the rank of the degree. The degree explains the number of connections or edges linked to a node. In the current graph, a node represents the name of the Journal and authors; they are connected through the edges. Therefore, the more the authors are associated with the Journal, the higher the degree. The algorithm used for the layout is Yifan Hu’s.

Many authors are associated with the Journal of Banking and Finance, Journal of Accounting and Economics, Journal of Financial Economics, Journal of Financial Services Research, and Journal of Business Ethics. Therefore, they are the most relevant journals on banks’ risk, regulation, and profitability.

Location and affiliation analysis

Affiliation analysis helps to identify the top contributing countries and universities. Figure  5 shows the countries across the globe where articles have been published in the triad. The size of the circle in the map indicates the number of articles published in that country. Table 2 provides the details of the top contributing organizations.

Location of articles published on Triad of profitability, regulation, and risk

Figure  5 shows that the most significant number of articles is published in the USA, followed by the UK. Malaysia and China have also contributed many articles in this area. Table 2 shows that the top contributing universities are also from Malaysia, the UK, and the USA.

Key author analysis

Table 3 shows the number of articles written by the authors out of the 3457 articles. The table also shows the top 10 authors of bank risk, regulation, and profitability.

Fadzlan Sufian, affiliated with the Universiti Islam Malaysia, has the maximum number, with 33 articles. Philip Molyneux and M. Kabir Hassan are from the University of Sharjah and the University of New Orleans, respectively; they contributed significantly, with 20 and 18 articles, respectively.

However, when the quality of the article is selected based on 50 or more citations, Fadzlan Sufian has only 3 articles with more than 50 citations. At the same time, Philip Molyneux and Allen Berger contributed more quality articles, with 8 and 11 articles, respectively.

Keyword analysis

Table 4 shows the keyword analysis (times they appeared in the articles). The top 10 keywords are listed in Table 4 . Banking and banks appeared 324 and 194 times, respectively, which forms the scope of this study, covering articles from the beginning till 2020. The keyword analysis helps to determine the factors affecting banks, such as profitability (244), efficiency (129), performance (107, corporate governance (153), risk (90), and regulation (89).

The keywords also show that efficiency through data envelopment analysis is a determinant of the performance of banks. The other significant determinants that appeared as keywords are credit risk (73), competition (70), financial stability (69), ownership structure (57), capital (56), corporate social responsibility (56), liquidity (46), diversification (45), sustainability (44), credit provision (41), economic growth (41), capital structure (39), microfinance (39), Basel III (37), non-performing assets (37), cost efficiency (30), lending behavior (30), interest rate (29), mergers and acquisition (28), capital adequacy (26), developing countries (23), net interest margin (23), board of directors (21), disclosure (21), leverage (21), productivity (20), innovation (18), firm size (16), and firm value (16).

Keyword analysis also shows the theories of banking and their determinants. Some of the theories are agency theory (23), information asymmetry (21), moral hazard (17), and market efficiency (16), which can be used by researchers when building a theory. The analysis also helps to determine the methodology that was used in the published articles; some of them are data envelopment analysis (89), which measures technical efficiency, panel data analysis (61), DEA (32), Z scores (27), regression analysis (23), stochastic frontier analysis (20), event study (15), and literature review (15). The count for literature review is only 15, which confirms that very few studies have conducted an SLR on bank risk, regulation, and profitability.

Citation analysis

One of the parameters used in judging the quality of the article is its “citation.” Table 5 shows the top 10 published articles with the highest number of citations. Ding and Cronin [ 44 ] indicated that the popularity of an article depends on the number of times it has been cited.

Tahamtan et al. [ 126 ] explained that the journal’s quality also affects its published articles’ citations. A quality journal will have a high impact factor and, therefore, more citations. The citation analysis helps researchers to identify seminal articles. The title of an article with 5900 citations is “A survey of corporate governance.”

Page Rank analysis

Goyal and Kumar [ 53 ] explain that the citation analysis indicates the ‘popularity’ and ‘prestige’ of the published research article. Apart from the citation analysis, one more analysis is essential: Page rank analysis. PageRank is given by Page et al. [ 97 ]. The impact of an article can be measured with one indicator called PageRank [ 135 ]. Page rank analysis indicates how many times an article is cited by other highly cited articles. The method helps analyze the web pages, which get the priority during any search done on google. The analysis helps in understanding the citation networks. Equation  1 explains the page rank (PR) of a published paper, N refers to the number of articles.

T 1,… T n indicates the paper, which refers paper P . C ( Ti ) indicates the number of citations. The damping factor is denoted by a “ d ” which varies in the range of 0 and 1. The page rank of all the papers is equal to 1. Table 6 shows the top papers based on page rank. Tables 5 and 6 together show a contrast in the top ranked articles based on citations and page rank, respectively. Only one article “A survey of corporate governance” falls under the prestigious articles based on the page rank.

Content analysis

Content Analysis is a research technique for conducting qualitative and quantitative analyses [ 124 ]. The content analysis is a helpful technique that provides the required information in classifying the articles depending on their nature (empirical or conceptual) [ 76 ]. By adopting the content analysis method [ 53 , 102 ], the selected articles are examined to determine their content. The classification of available content from the selected set of sample articles that are categorized under different subheads. The themes identified in the relationship between banking regulation, risk, and profitability are as follows.

Regulation and profitability of banks

The performance indicators of the banking industry have always been a topic of interest to researchers and practitioners. This area of research has assumed a special interest after the 2008 WFC [ 25 , 51 , 86 , 114 , 127 , 132 ]. According to research, the causes of poor performance and risk management are lousy banking practices, ineffective monitoring, inadequate supervision, and weak regulatory mechanisms [ 94 ]. Increased competition, deregulation, and complex financial instruments have made banks, including Indian banks, more vulnerable to risks [ 18 , 93 , 119 , 123 ]. Hence, it is essential to investigate the present regulatory machinery for the performance of banks.

There are two schools of thought on regulation and its possible impact on profitability. The first asserts that regulation does not affect profitability. The second asserts that regulation adds significant value to banks’ profitability and other performance indicators. This supports the concept that Delis et al. [ 41 ] advocated that the capital adequacy requirement and supervisory power do not affect productivity or profitability unless there is a financial crisis. Laeven and Majnoni [ 81 ] insisted that provision for loan loss should be part of capital requirements. This will significantly improve active risk management practices and ensure banks’ profitability.

Lee and Hsieh [ 83 ] proposed ambiguous findings that do not support either school of thought. According to Nguyen and Nghiem [ 95 ], while regulation is beneficial, it has a negative impact on bank profitability. As a result, when proposing regulations, it is critical to consider bank performance and risk management. According to Erfani and Vasigh [ 46 ], Islamic banks maintained their efficiency between 2006 and 2013, while most commercial banks lost, furthermore claimed that the financial crisis had no significant impact on Islamic bank profitability.

Regulation and NPA (risk-taking of banks)

The regulatory mechanism of banks in any country must address the following issues: capital adequacy ratio, prudent provisioning, concentration banking, the ownership structure of banks, market discipline, regulatory devices, presence of foreign capital, bank competition, official supervisory power, independence of supervisory bodies, private monitoring, and NPAs [ 25 ].

Kanoujiya et al. [ 64 ] revealed through empirical evidence that Indian bank regulations lack a proper understanding of what banks require and propose reforming and transforming regulation in Indian banks so that responsive governance and regulation can occur to make banks safer, supported by Rastogi et al. [ 105 ]. The positive impact of regulation on NPAs is widely discussed in the literature. [ 94 ] argue that regulation has multiple effects on banks, including reducing NPAs. The influence is more powerful if the country’s banking system is fragile. Regulation, particularly capital regulation, is extremely effective in reducing risk-taking in banks [ 103 ].

Rastogi and Kanoujiya [ 106 ] discovered evidence that disclosure regulations do not affect the profitability of Indian banks, supported by Karyani et al. [ 65 ] for the banks located in Asia. Furthermore, Rastogi and Kanoujiya [ 106 ] explain that disclosure is a difficult task as a regulatory requirement. It is less sustainable due to the nature of the imposed regulations in banks and may thus be perceived as a burden and may be overcome by realizing the benefits associated with disclosure regulation [ 31 , 54 , 101 ]. Zheng et al. [ 138 ] empirically discovered that regulation has no impact on the banks’ profitability in Bangladesh.

Governments enforce banking regulations to achieve a stable and efficient financial system [ 20 , 94 ]. The existing literature is inconclusive on the effects of regulatory compliance on banks’ risks or the reduction of NPAs [ 10 , 11 ]. Boudriga et al. [ 25 ] concluded that the regulatory mechanism plays an insignificant role in reducing NPAs. This is especially true in weak institutions, which are susceptible to corruption. Gonzalez [ 52 ] reported that firm regulations have a positive relationship with banks’ risk-taking, increasing the probability of NPAs. However, Boudriga et al. [ 25 ], Samitas and Polyzos [ 113 ], and Allen et al. [ 3 ] strongly oppose the use of regulation as a tool to reduce banks’ risk-taking.

Kwan and Laderman [ 79 ] proposed three levels in regulating banks, which are lax, liberal, and strict. The liberal regulatory framework leads to more diversification in banks. By contrast, the strict regulatory framework forces the banks to take inappropriate risks to compensate for the loss of business; this is a global problem [ 73 ].

Capital regulation reduces banks’ risk-taking [ 103 , 110 ]. Capital regulation leads to cost escalation, but the benefits outweigh the cost [ 103 ]. The trade-off is worth striking. Altman Z score is used to predict banks’ bankruptcy, and it found that the regulation increased the Altman’s Z-score [ 4 , 46 , 63 , 68 , 72 , 120 ]. Jin et al. [ 62 ] report a negative relationship between regulation and banks’ risk-taking. Capital requirements empowered regulators, and competition significantly reduced banks’ risk-taking [ 1 , 122 ]. Capital regulation has a limited impact on banks’ risk-taking [ 90 , 103 ].

Maji and De [ 90 ] suggested that human capital is more effective in managing banks’ credit risks. Besanko and Kanatas [ 21 ] highlighted that regulation on capital requirements might not mitigate risks in all scenarios, especially when recapitalization has been enforced. Klomp and De Haan [ 72 ] proposed that capital requirements and supervision substantially reduce banks’ risks.

A third-party audit may impart more legitimacy to the banking system [ 23 ]. The absence of third-party intervention is conspicuous, and this may raise a doubt about the reliability and effectiveness of the impact of regulation on bank’s risk-taking.

NPA (risk-taking) in banks and profitability

Profitability affects NPAs, and NPAs, in turn, affect profitability. According to the bad management hypothesis [ 17 ], higher profits would negatively affect NPAs. By contrast, higher profits may lead management to resort to a liberal credit policy (high earnings), which may eventually lead to higher NPAs [ 104 ].

Balasubramaniam [ 8 ] demonstrated that NPA has double negative effects on banks. NPAs increase stressed assets, reducing banks’ productive assets [ 92 , 117 , 136 ]. This phenomenon is relatively underexplored and therefore renders itself for future research.

Triad and the performance of banks

Regulation and triad.

Regulations and their impact on banks have been a matter of debate for a long time. Barth et al. [ 12 ] demonstrated that countries with a central bank as the sole regulatory body are prone to high NPAs. Although countries with multiple regulatory bodies have high liquidity risks, they have low capital requirements [ 40 ]. Barth et al. [ 12 ] supported the following steps to rationalize the existing regulatory mechanism on banks: (1) mandatory information [ 22 ], (2) empowered management of banks, and (3) increased incentive for private agents to exert corporate control. They show that profitability has an inverse relationship with banks’ risk-taking [ 114 ]. Therefore, standard regulatory practices, such as capital requirements, are not beneficial. However, small domestic banks benefit from capital restrictions.

DeYoung and Jang [ 43 ] showed that Basel III-based policies of liquidity convergence ratio (LCR) and net stable funding ratio (NSFR) are not fully executed across the globe, including the US. Dahir et al. [ 39 ] found that a decrease in liquidity and funding increases banks’ risk-taking, making banks vulnerable and reducing stability. Therefore, any regulation on liquidity risk is more likely to create problems for banks.

Concentration banking and triad

Kiran and Jones [ 71 ] asserted that large banks are marginally affected by NPAs, whereas small banks are significantly affected by high NPAs. They added a new dimension to NPAs and their impact on profitability: concentration banking or banks’ market power. Market power leads to less cost and more profitability, which can easily counter the adverse impact of NPAs on profitability [ 6 , 15 ].

The connection between the huge volume of research on the performance of banks and competition is the underlying concept of market power. Competition reduces market power, whereas concentration banking increases market power [ 25 ]. Concentration banking reduces competition, increases market power, rationalizes the banks’ risk-taking, and ensures profitability.

Tabak et al. [ 125 ] advocated that market power incentivizes banks to become risk-averse, leading to lower costs and high profits. They explained that an increase in market power reduces the risk-taking requirement of banks. Reducing banks’ risks due to market power significantly increases when capital regulation is executed objectively. Ariss [ 6 ] suggested that increased market power decreases competition, and thus, NPAs reduce, leading to increased banks’ stability.

Competition, the performance of banks, and triad

Boyd and De Nicolo [ 27 ] supported that competition and concentration banking are inversely related, whereas competition increases risk, and concentration banking decreases risk. A mere shift toward concentration banking can lead to risk rationalization. This finding has significant policy implications. Risk reduction can also be achieved through stringent regulations. Bolt and Tieman [ 24 ] explained that stringent regulation coupled with intense competition does more harm than good, especially concerning banks’ risk-taking.

Market deregulation, as well as intensifying competition, would reduce the market power of large banks. Thus, the entire banking system might take inappropriate and irrational risks [ 112 ]. Maji and Hazarika [ 91 ] added more confusion to the existing policy by proposing that, often, there is no relationship between capital regulation and banks’ risk-taking. However, some cases have reported a positive relationship. This implies that banks’ risk-taking is neutral to regulation or leads to increased risk. Furthermore, Maji and Hazarika [ 91 ] revealed that competition reduces banks’ risk-taking, contrary to popular belief.

Claessens and Laeven [ 36 ] posited that concentration banking influences competition. However, this competition exists only within the restricted circle of banks, which are part of concentration banking. Kasman and Kasman [ 66 ] found that low concentration banking increases banks’ stability. However, they were silent on the impact of low concentration banking on banks’ risk-taking. Baselga-Pascual et al. [ 14 ] endorsed the earlier findings that concentration banking reduces banks’ risk-taking.

Concentration banking and competition are inversely related because of the inherent design of concentration banking. Market power increases when only a few large banks are operating; thus, reduced competition is an obvious outcome. Barra and Zotti [ 9 ] supported the idea that market power, coupled with competition between the given players, injects financial stability into banks. Market power and concentration banking affect each other. Therefore, concentration banking with a moderate level of regulation, instead of indiscriminate regulation, would serve the purpose better. Baselga-Pascual et al. [ 14 ] also showed that concentration banking addresses banks’ risk-taking.

Schaeck et al. [ 115 ], in a landmark study, presented that concentration banking and competition reduce banks’ risk-taking. However, they did not address the relationship between concentration banking and competition, which are usually inversely related. This could be a subject for future research. Research on the relationship between concentration banking and competition is scant, identified as a research gap (“ Research Implications of the study ” section).

Transparency, corporate governance, and triad

One of the big problems with NPAs is the lack of transparency in both the regulatory bodies and banks [ 25 ]. Boudriga et al. [ 25 ] preferred to view NPAs as a governance issue and thus, recommended viewing it from a governance perspective. Ahmad and Ariff [ 2 ] concluded that regulatory capital and top-management quality determine banks’ credit risk. Furthermore, they asserted that credit risk in emerging economies is higher than that of developed economies.

Bad management practices and moral vulnerabilities are the key determinants of insolvency risks of Indian banks [ 95 ]. Banks are an integral part of the economy and engines of social growth. Therefore, banks enjoy liberal insolvency protection in India, especially public sector banks, which is a critical issue. Such a benevolent insolvency cover encourages a bank to be indifferent to its capital requirements. This indifference takes its toll on insolvency risk and profit efficiency. Insolvency protection makes the bank operationally inefficient and complacent.

Foreign equity and corporate governance practices help manage the adverse impact of banks’ risk-taking to ensure the profitability and stability of banks [ 33 , 34 ]. Eastburn and Sharland [ 45 ] advocated that sound management and a risk management system that can anticipate any impending risk are essential. A pragmatic risk mechanism should replace the existing conceptual risk management system.

Lo [ 87 ] found and advocated that the existing legislation and regulations are outdated. He insisted on a new perspective and asserted that giving equal importance to behavioral aspects and the rational expectations of customers of banks is vital. Buston [ 29 ] critiqued the balance sheet risk management practices prevailing globally. He proposed active risk management practices that provided risk protection measures to contain banks’ liquidity and solvency risks.

Klomp and De Haan [ 72 ] championed the cause of giving more autonomy to central banks of countries to provide stability in the banking system. Louzis et al. [ 88 ] showed that macroeconomic variables and the quality of bank management determine banks’ level of NPAs. Regulatory authorities are striving hard to make regulatory frameworks more structured and stringent. However, the recent increase in loan defaults (NPAs), scams, frauds, and cyber-attacks raise concerns about the effectiveness [ 19 ] of the existing banking regulations in India as well as globally.

Discussion of the findings

The findings of this study are based on the bibliometric and content analysis of the sample published articles.

The bibliometric study concludes that there is a growing demand for researchers and good quality research

The keyword analysis suggests that risk regulation, competition, profitability, and performance are key elements in understanding the banking system. The main authors, keywords, and journals are grouped in a Sankey diagram in Fig.  6 . Researchers can use the following information to understand the publication pattern on banking and its determinants.

Sankey Diagram of main authors, keywords, and journals. Note Authors contribution using scientometrics tools

Research Implications of the study

The study also concludes that a balance among the three components of triad is the solution to the challenges of banks worldwide, including India. We propose the following recommendations and implications for banks:

This study found that “the lesser the better,” that is, less regulation enhances the performance and risk management of banks. However, less regulation does not imply the absence of regulation. Less regulation means the following:

Flexible but full enforcement of the regulations

Customization, instead of a one-size-fits-all regulatory system rooted in a nation’s indigenous requirements, is needed. Basel or generic regulation can never achieve what a customized compliance system can.

A third-party audit, which is above the country's central bank, should be mandatory, and this would ensure that all three aspects of audit (policy formulation, execution, and audit) are handled by different entities.

Competition

This study asserts that the existing literature is replete with poor performance and risk management due to excessive competition. Banking is an industry of a different genre, and it would be unfair to compare it with the fast-moving consumer goods (FMCG) or telecommunication industry, where competition injects efficiency into the system, leading to customer empowerment and satisfaction. By contrast, competition is a deterrent to the basic tenets of safe banking. Concentration banking is more effective in handling the multi-pronged balance between the elements of the triad. Concentration banking reduces competition to lower and manageable levels, reduces banks’ risk-taking, and enhances profitability.

No incentive to take risks

It is found that unless banks’ risk-taking is discouraged, the problem of high NPA (risk-taking) cannot be addressed. Concentration banking is a disincentive to risk-taking and can be a game-changer in handling banks’ performance and risk management.

Research on the risk and performance of banks reveals that the existing regulatory and policy arrangement is not a sustainable proposition, especially for a country where half of the people are unbanked [ 37 ]. Further, the triad presented by Keeley [ 67 ] is a formidable real challenge to bankers. The balance among profitability, risk-taking, and regulation is very subtle and becomes harder to strike, just as the banks globally have tried hard to achieve it. A pragmatic intervention is needed; hence, this study proposes a change in the banking structure by having two types of banks functioning simultaneously to solve the problems of risk and performance of banks. The proposed two-tier banking system explained in Fig.  7 can be a great solution. This arrangement will help achieve the much-needed balance among the elements of triad as presented by Keeley [ 67 ].

Conceptual Framework. Note Fig.  7 describes the conceptual framework of the study

The first set of banks could be conventional in terms of their structure and should primarily be large-sized. The number of such banks should be moderate. There is a logic in having only a few such banks to restrict competition; thus, reasonable market power could be assigned to them [ 55 ]. However, a reduction in competition cannot be over-assumed, and banks cannot become complacent. As customary, lending would be the main source of revenue and income for these banks (fund based activities) [ 82 ]. The proposed two-tier system can be successful only when regulation especially for risk is objectively executed [ 29 ]. The second set of banks could be smaller in size and more in number. Since they are more in number, they would encounter intense competition for survival and for generating more business. Small is beautiful, and thus, this set of banks would be more agile and adaptable and consequently more efficient and profitable. The main source of revenue for this set of banks would not be loans and advances. However, non-funding and non-interest-bearing activities would be the major revenue source. Unlike their traditional and large-sized counterparts, since these banks are smaller in size, they are less likely to face risk-taking and NPAs [ 74 ].

Sarmiento and Galán [ 114 ] presented the concerns of large and small banks and their relative ability and appetite for risk-taking. High risk could threaten the existence of small-sized banks; thus, they need robust risk shielding. Small size makes them prone to failure, and they cannot convert their risk into profitability. However, large banks benefit from their size and are thus less vulnerable and can convert risk into profitable opportunities.

India has experimented with this Differential Banking System (DBS) (two-tier system) only at the policy planning level. The execution is impending, and it highly depends on the political will, which does not appear to be strong now. The current agenda behind the DBS model is not to ensure the long-term sustainability of banks. However, it is currently being directed to support the agenda of financial inclusion by extending the formal credit system to the unbanked masses [ 107 ]. A shift in goal is needed to employ the DBS as a strategic decision, but not merely a tool for financial inclusion. Thus, the proposed two-tier banking system (DBS) can solve the issue of profitability through proper regulation and less risk-taking.

The findings of Triki et al. [ 130 ] support the proposed DBS model, in this study. Triki et al. [ 130 ] advocated that different component of regulations affect banks based on their size, risk-taking, and concentration banking (or market power). Large size, more concentration banking with high market power, and high risk-taking coupled with stringent regulation make the most efficient banks in African countries. Sharifi et al. [ 119 ] confirmed that size advantage offers better risk management to large banks than small banks. The banks should modify and work according to the economic environment in the country [ 69 ], and therefore, the proposed model could help in solving the current economic problems.

This is a fact that DBS is running across the world, including in India [ 60 ] and other countries [ 133 ]. India experimented with DBS in the form of not only regional rural banks (RRBs) but payments banks [ 109 ] and small finance banks as well [ 61 ]. However, the purpose of all the existing DBS models, whether RRBs [ 60 ], payment banks, or small finance banks, is financial inclusion, not bank performance and risk management. Hence, they are unable to sustain and are failing because their model is only social instead of a much-needed dual business-cum-social model. The two-tier model of DBS proposed in the current paper can help serve the dual purpose. It may not only be able to ensure bank performance and risk management but also serve the purpose of inclusive growth of the economy.

Conclusion of the study

The study’s conclusions have some significant ramifications. This study can assist researchers in determining their study plan on the current topic by using a scientific approach. Citation analysis has aided in the objective identification of essential papers and scholars. More collaboration between authors from various countries/universities may help countries/universities better understand risk regulation, competition, profitability, and performance, which are critical elements in understanding the banking system. The regulatory mechanism in place prior to 2008 failed to address the risk associated with banks [ 47 , 87 ]. There arises a necessity and motivates authors to investigate the current topic. The present study systematically explores the existing literature on banks’ triad: performance, regulation, and risk management and proposes a probable solution.

To conclude the bibliometric results obtained from the current study, from the number of articles published from 1976 to 2020, it is evident that most of the articles were published from the year 2010, and the highest number of articles were published in the last five years, i.e., is from 2015. The authors discovered that researchers evaluate articles based on the scope of critical journals within the subject area based on the detailed review. Most risk, regulation, and profitability articles are published in peer-reviewed journals like; “Journal of Banking and Finance,” “Journal of Accounting and Economics,” and “Journal of Financial Economics.” The rest of the journals are presented in Table 1 . From the affiliation statistics, it is clear that most of the research conducted was affiliated with developed countries such as Malaysia, the USA, and the UK. The researchers perform content analysis and Citation analysis to access the type of content where the research on the current field of knowledge is focused, and citation analysis helps the academicians understand the highest cited articles that have more impact in the current research area.

Practical implications of the study

The current study is unique in that it is the first to systematically evaluate the publication pattern in banking using a combination of scientometrics analysis tools, network analysis tools, and content analysis to understand the relationship between bank regulation, performance, and risk. The study’s practical implications are that analyzing existing literature helps researchers generate new themes and ideas to justify their contribution to literature. Evidence-based research knowledge also improves decision-making, resulting in better practical implementation in the real corporate world [ 100 , 129 ].

Limitations and scope for future research

The current study only considers a single database Scopus to conduct the study, and this is one of the limitations of the study spanning around the multiple databases can provide diverse results. The proposed DBS model is a conceptual framework that requires empirical testing, which is a limitation of this study. As a result, empirical testing of the proposed DBS model could be a future research topic.

Availability of data and materials

SCOPUS database.

Abbreviations

Systematic literature review

World Financial Crisis

Non-performing assets

Differential banking system

SCImago Journal Rank Indicator

Liquidity convergence ratio

Net stable funding ratio

Fast moving consumer goods

Regional rural banks

Agoraki M-EK, Delis MD, Pasiouras F (2011) Regulations, competition and bank risk-taking in transition countries. J Financ Stab 7(1):38–48

Google Scholar  

Ahmad NH, Ariff M (2007) Multi-country study of bank credit risk determinants. Int J Bank Financ 5(1):35–62

Allen B, Chan KK, Milne A, Thomas S (2012) Basel III: Is the cure worse than the disease? Int Rev Financ Anal 25:159–166

Altman EI (2018) A fifty-year retrospective on credit risk models, the Altman Z-score family of models, and their applications to financial markets and managerial strategies. J Credit Risk 14(4):1–34

Alvarez F, Jermann UJ (2000) Efficiency, equilibrium, and asset pricing with risk of default. Econometrica 68(4):775–797

Ariss RT (2010) On the implications of market power in banking: evidence from developing countries. J Bank Financ 34(4):765–775

Aznar-Sánchez JA, Piquer-Rodríguez M, Velasco-Muñoz JF, Manzano-Agugliaro F (2019) Worldwide research trends on sustainable land use in agriculture. Land Use Policy 87:104069

Balasubramaniam C (2012) Non-performing assets and profitability of commercial banks in India: assessment and emerging issues. Nat Mon Refereed J Res Commer Manag 1(1):41–52

Barra C, Zotti R (2017) On the relationship between bank market concentration and stability of financial institutions: evidence from the Italian banking sector, MPRA working Paper No 79900. Last Accessed on Jan 2021 https://mpra.ub.uni-muenchen.de/79900/1/MPRA_paper_79900.pdf

Barth JR, Caprio G, Levine R (2004) Bank regulation and supervision: what works best? J Financ Intermed 2(13):205–248

Barth JR, Caprio G, Levine R (2008) Bank regulations are changing: For better or worse? Comp Econ Stud 50(4):537–563

Barth JR, Dopico LG, Nolle DE, Wilcox JA (2002) Bank safety and soundness and the structure of bank supervision: a cross-country analysis. Int Rev Financ 3(3–4):163–188

Bartolini M, Bottani E, Grosse EH (2019) Green warehousing: systematic literature review and bibliometric analysis. J Clean Prod 226:242–258

Baselga-Pascual L, Trujillo-Ponce A, Cardone-Riportella C (2015) Factors influencing bank risk in Europe: evidence from the financial crisis. N Am J Econ Financ 34(1):138–166

Beck T, Demirgüç-Kunt A, Levine R (2006) Bank concentration, competition, and crises: first results. J Bank Financ 30(5):1581–1603

Berger AN, Demsetz RS, Strahan PE (1999) The consolidation of the financial services industry: causes, consequences, and implications for the future. J Bank Financ 23(2–4):135–194

Berger AN, Deyoung R (1997) Problem loans and cost efficiency in commercial banks. J Bank Financ 21(6):849–870

Berger AN, Udell GF (1998) The economics of small business finance: the roles of private equity and debt markets in the financial growth cycle. J Bank Financ 22(6–8):613–673

Berger AN, Udell GF (2002) Small business credit availability and relationship lending: the importance of bank organisational structure. Econ J 112(477):F32–F53

Berger AN, Udell GF (2006) A more complete conceptual framework for SME finance. J Bank Financ 30(11):2945–2966

Besanko D, Kanatas G (1996) The regulation of bank capital: Do capital standards promote bank safety? J Financ Intermed 5(2):160–183

Beyer A, Cohen DA, Lys TZ, Walther BR (2010) The financial reporting environment: review of the recent literature. J Acc Econ 50(2–3):296–343

Bikker JA (2010) Measuring performance of banks: an assessment. J Appl Bus Econ 11(4):141–159

Bolt W, Tieman AF (2004) Banking competition, risk and regulation. Scand J Econ 106(4):783–804

Boudriga A, BoulilaTaktak N, Jellouli S (2009) Banking supervision and non-performing loans: a cross-country analysis. J Financ Econ Policy 1(4):286–318

Bouzon M, Miguel PAC, Rodriguez CMT (2014) Managing end of life products: a review of the literature on reverse logistics in Brazil. Manag Environ Qual Int J 25(5):564–584. https://doi.org/10.1108/MEQ-04-2013-0027

Article   Google Scholar  

Boyd JH, De Nicolo G (2005) The theory of bank risk taking and competition revisited. J Financ 60(3):1329–1343

Brealey RA, Myers SC, Allen F, Mohanty P (2012) Principles of corporate finance. Tata McGraw-Hill Education

Buston CS (2016) Active risk management and banking stability. J Bank Financ 72:S203–S215

Casu B, Girardone C (2006) Bank competition, concentration and efficiency in the single European market. Manch Sch 74(4):441–468

Charumathi B, Ramesh L (2020) Impact of voluntary disclosure on valuation of firms: evidence from Indian companies. Vision 24(2):194–203

Chen X (2007) Banking deregulation and credit risk: evidence from the EU. J Financ Stab 2(4):356–390

Chen H-J, Lin K-T (2016) How do banks make the trade-offs among risks? The role of corporate governance. J Bank Financ 72(1):S39–S69

Chen M, Wu J, Jeon BN, Wang R (2017) Do foreign banks take more risk? Evidence from emerging economies. J Bank Financ 82(1):20–39

Claessens S, Laeven L (2003) Financial development, property rights, and growth. J Financ 58(6):2401–2436. https://doi.org/10.1046/j.1540-6261.2003.00610.x

Claessens S, Laeven L (2004) What drives bank competition? Some international evidence. J Money Credit Bank 36(3):563–583

Cnaan RA, Moodithaya M, Handy F (2012) Financial inclusion: lessons from rural South India. J Soc Policy 41(1):183–205

Core JE, Holthausen RW, Larcker DF (1999) Corporate governance, chief executive officer compensation, and firm performance. J Financ Econ 51(3):371–406

Dahir AM, Mahat FB, Ali NAB (2018) Funding liquidity risk and bank risk-taking in BRICS countries: an application of system GMM approach. Int J Emerg Mark 13(1):231–248

Dechow P, Ge W, Schrand C (2010) Understanding earnings quality: a review of the proxies, their determinants, and their consequences. J Acc Econ 50(2–3):344–401

Delis MD, Molyneux P, Pasiouras F (2011) Regulations and productivity growth in banking: evidence from transition economies. J Money Credit Bank 43(4):735–764

Demirguc-Kunt A, Laeven L, Levine R (2003) Regulations, market structure, institutions, and the cost of financial intermediation (No. w9890). National Bureau of Economic Research.

Deyoung R, Jang KY (2016) Do banks actively manage their liquidity? J Bank Financ 66:143–161

Ding Y, Cronin B (2011) Popularand/orprestigious? Measures of scholarly esteem. Inf Process Manag 47(1):80–96

Eastburn RW, Sharland A (2017) Risk management and managerial mindset. J Risk Financ 18(1):21–47

Erfani GR, Vasigh B (2018) The impact of the global financial crisis on profitability of the banking industry: a comparative analysis. Economies 6(4):66

Erkens DH, Hung M, Matos P (2012) Corporate governance in the 2007–2008 financial crisis: evidence from financial institutions worldwide. J Corp Finan 18(2):389–411

Fahimnia B, Sarkis J, Davarzani H (2015) Green supply chain management: a review and bibliometric analysis. Int J Prod Econ 162:101–114

Financial Stability Report (2019) Financial stability report (20), December 2019. https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=946 Accesses on March 2020

Fink A (2005) Conducting Research Literature Reviews:From the Internet to Paper, 2nd edn. SAGE Publications

Ghosh A (2015) Banking-industry specific and regional economic determinants of non-performing loans: evidence from US states. J Financ Stab 20:93–104. https://doi.org/10.1016/j.jfs.2015.08.004

Gonzalez F (2005) Bank regulation and risk-taking incentives: an international comparison of bank risk. J Bank Financ 29(5):1153–1184

Goyal K, Kumar S (2021) Financial literacy: a systematic review and bibliometric analysis. Int J Consum Stud 45(1):80–105

Grassa R, Moumen N, Hussainey K (2020) Do ownership structures affect risk disclosure in Islamic banks? International evidence. J Financ Rep Acc 19(3):369–391

Haque F, Shahid R (2016) Ownership, risk-taking and performance of banks in emerging economies: evidence from India. J Financ Econ Policy 8(3):282–297

Hellmann TF, Murdock KC, Stiglitz JE (2000) Liberalization, moral hazard in banking, and prudential regulation: Are capital requirements enough? Am Econ Rev 90(1):147–165

Hirshleifer D (2001) Investor psychology and asset pricing. J Financ 56(4):1533–1597

Huang J, You JX, Liu HC, Song MS (2020) Failure mode and effect analysis improvement: a systematic literature review and future research agenda. Reliab Eng Syst Saf 199:106885

Ibáñez Zapata A (2017) Bibliometric analysis of the regulatory compliance function within the banking sector (Doctoral dissertation). Last Accessed on Jan 2021 https://riunet.upv.es/bitstream/handle/10251/85952/Bibliometric%20analysis_AIZ_v4.pdf?sequence=1

Ibrahim MS (2010) Performance evaluation of regional rural banks in India. Int Bus Res 3(4):203–211

Jayadev M, Singh H, Kumar P (2017) Small finance banks: challenges. IIMB Manag Rev 29(4):311–325

Jin JY, Kanagaretnam K, Lobo GJ, Mathieu R (2013) Impact of FDICIA internal controls on bank risk taking. J Bank Financ 37(2):614–624

Joshi MK (2020) Financial performance analysis of select Indian Public Sector Banks using Altman’s Z-Score model. SMART J Bus Manag Stud 16(2):74–87

Kanoujiya J, Bhimavarapu VM, Rastogi S (2021) Banks in India: a balancing act between profitability, regulation and NPA. Vision, 09722629211034417

Karyani E, Dewo SA, Santoso W, Frensidy B (2020) Risk governance and bank profitability in ASEAN-5: a comparative and empirical study. Int J Emerg Mark 15(5):949–969

Kasman S, Kasman A (2015) Bank competition, concentration and financial stability in the Turkish banking industry. Econ Syst 39(3):502–517

Keeley MC (1990) Deposit insurance, risk, and market power in banking. Am Econ Rev 1:1183–1200

Khaddafi M, Heikal M, Nandari A (2017) Analysis Z-score to predict bankruptcy in banks listed in indonesia stock exchange. Int J Econ Financ Issues 7(3):326–330

Khanna T, Yafeh Y (2007) Business groups in emerging markets: Paragons or parasites? J Econ Lit 45(2):331–372

King RG, Levine R (1993) Finance and growth: schumpeter might be right. Q J Econ 108(3):717–737

Kiran KP, Jones TM (2016) Effect of non performing assets on the profitability of banks–a selective study. Int J Bus Gen Manag 5(2):53–60

Klomp J, De Haan J (2015) Banking risk and regulation: Does one size fit all? J Bank Financ 36(12):3197–3212

Koehn M, Santomero AM (1980) Regulation of bank capital and portfolio risk. J Financ 35(5):1235–1244

Köhler M (2015) Which banks are more risky? The impact of business models on bank stability. J Financ Stab 16(1):195–212

Kothari SP (2001) Capital markets research in accounting. J Account Econ 31(1–3):105–231

Kumar S, Goyal N (2015) Behavioural biases in investment decision making – a systematic literature review. Qual Res Financ Mark 7(1):88–108

Kumar S, Kamble S, Roy MH (2020) Twenty-five years of Benchmarking: an International Journal (BIJ): a bibliometric overview. Benchmarking Int J 27(2):760–780. https://doi.org/10.1108/BIJ-07-2019-0314

Kumar S, Sureka R, Colombage S (2020) Capital structure of SMEs: a systematic literature review and bibliometric analysis. Manag Rev Q 70(4):535–565. https://doi.org/10.1007/s11301-019-00175-4

Kwan SH, Laderman ES (1999) On the portfolio effects of financial convergence-a review of the literature. Econ Rev 2:18–31

Lado AA, Boyd NG, Hanlon SC (1997) Competition, cooperation, and the search for economic rents: a syncretic model. Acad Manag Rev 22(1):110–141

Laeven L, Majnoni G (2003) Loan loss provisioning and economic slowdowns: Too much, too late? J Financ Intermed 12(2):178–197

Laeven L, Ratnovski L, Tong H (2016) Bank size, capital, and systemic risk: Some international evidence. J Bank Finance 69(1):S25–S34

Lee C-C, Hsieh M-F (2013) The impact of bank capital on profitability and risk in Asian banking. J Int Money Financ 32(1):251–281

Leech D, Leahy J (1991) Ownership structure, control type classifications and the performance of large British companies. Econ J 101(409):1418–1437

Levine R (1997) Financial development and economic growth: views and agenda. J Econ Lit 35(2):688–726

Lim CY, Woods M, Humphrey C, Seow JL (2017) The paradoxes of risk management in the banking sector. Br Acc Rev 49(1):75–90

Lo AW (2009) Regulatory reform in the wake of the financial crisis of 2007–2008. J Financ Econ Policy 1(1):4–43

Louzis DP, Vouldis AT, Metaxas VL (2012) Macroeconomic and bank-specific determinants of non-performing loans in Greece: a comparative study of mortgage, business and consumer loan portfolios. J Bank Financ 36(4):1012–1027

Maddaloni A, Peydró J-L (2011) Bank risk-taking, securitization, supervision, and low interest rates: evidence from the Euro-area and the U.S. lending standards. Rev Financ Stud 24(6):2121–2165. https://doi.org/10.1093/rfs/hhr015

Maji SG, De UK (2015) Regulatory capital and risk of Indian banks: a simultaneous equation approach. J Financ Econ Policy 7(2):140–156

Maji SG, Hazarika P (2018) Capital regulation, competition and risk-taking behavior of Indian banks in a simultaneous approach. Manag Financ 44(4):459–477

Messai AS, Jouini F (2013) Micro and macro determinants of non-performing loans. Int J Econ Financ Issues 3(4):852–860

Mitra S, Karathanasopoulos A, Sermpinis G, Dunis C, Hood J (2015) Operational risk: emerging markets, sectors and measurement. Eur J Oper Res 241(1):122–132

Mohsni S, Otchere I (2018) Does regulatory regime matter for bank risk-taking? A comparative analysis of US and Canada, d/Seas Working Papers-ISSN 2611-0172 1(1):28–28

Nguyen TPT, Nghiem SH (2015) The interrelationships among default risk, capital ratio and efficiency: evidence from Indian banks. Manag Financ 41(5):507–525

Niinimäki J-P (2004) The effects of competition on banks’ risk taking. J Econ 81(3):199–222

Page L, Brin S, Motwani R, Winograd T (1999) The PageRank citation ranking: bringing order to the web. Stanford InfoLab

Pakravan K (2014) Bank capital: the case against Basel. J Financ Regul Compl 22(3):208–218

Palacios-Callender M, Roberts SA, Roth-Berghofer T (2016) Evaluating patterns of national and international collaboration in Cuban science using bibliometric tools. J Doc 72(2):362–390. https://doi.org/10.1108/JD-11-2014-0164

Pinto G, Rastogi S, Kadam S, Sharma A (2019) Bibliometric study on dividend policy. Qual Res Financ Mark 12(1):72–95

Polizzi S, Scannella E (2020) An empirical investigation into market risk disclosure: Is there room to improve for Italian banks? J Financ Regul Compl 28(3):465–483

Prasad P, Narayanasamy S, Paul S, Chattopadhyay S, Saravanan P (2019) Review of literature on working capital management and future research agenda. J Econ Surv 33(3):827–861

Rahman MM, Zheng C, Ashraf BN, Rahman MM (2018) Capital requirements, the cost of financial intermediation and bank risk-taking: empirical evidence from Bangladesh. Res Int Bus Financ 44(1):488–503

Rajan RG (1994) Why bank credit policies fluctuate: a theory and some evidence. Q J Econ 109(2):399–441

Rastogi S, Gupte R, Meenakshi R (2021) A holistic perspective on bank performance using regulation, profitability, and risk-taking with a view on ownership concentration. J Risk Financ Manag 14(3):111

Rastogi S, Kanoujiya J (2022) Does transparency and disclosure (T&D) improve the performance of banks in India? Int J Product Perform Manag. https://doi.org/10.1108/IJPPM-10-2021-0613

Rastogi S, Ragabiruntha E (2018) Financial inclusion and socioeconomic development: gaps and solution. Int J Soc Econ 45(7):1122–1140

RBI (2001) Prudential Norms on income recognition, asset classification, and provisioning -pertaining to advances. Accessed on Apr 2020. https://rbidocs.rbi.org.in/rdocs/notification/PDFs/23068.pdf

Reddy S (2018) Announcement of payment banks and stock performance of commercial banks in India. J Internet Bank Commer 23(1):1–12

Repullo R (2004) Capital requirements, market power, and risk-taking in banking. J Financ Intermed 13(2):156–182

Rowley J, Slack F (2004) Conducting a literature review. Manag Res News 27(6):31–39. https://doi.org/10.1108/01409170410784185

Salas V, Saurina J (2003) Deregulation, market power and risk behaviour in Spanish banks. Eur Econ Rev 47(6):1061–1075

Samitas A, Polyzos S (2015) To Basel or not to Basel? Banking crises and contagion. Journal of Financial Regulation and Compliance 23(3):298–318

Sarmiento M, Galán JE (2017) The influence of risk-taking on bank efficiency: evidence from Colombia. Emerg Mark Rev 32:52–73. https://doi.org/10.1016/j.ememar.2017.05.007

Schaeck K, Cihak M, Wolfe S (2009) Are competitive banking systems more stable? J Money Credit Bank 41(4):711–734

Schwerter S (2011) Basel III’s ability to mitigate systemic risk. J Financ Regul Compl 19(4):337–354

Sen S, Sen RL (2014) Impact of NPAs on bank profitability: an empirical study. In: Ray N, Chakraborty K (eds) Handbook of research on strategic business infrastructure development and contemporary issues in finance. IGI Global, pp 124–134. https://doi.org/10.4018/978-1-4666-5154-8.ch010

Chapter   Google Scholar  

Shajahan K (1998) Non-performing assets of banks: Have they really declined? And on whose account? Econ Pol Wkly 33(12):671–674

Sharifi S, Haldar A, Rao SN (2016) Relationship between operational risk management, size, and ownership of Indian banks. Manag Financ 42(10):930–942

Sharma A, Theresa L, Mhatre J, Sajid M (2019) Application of altman Z-Score to RBI defaulters: Indian case. Asian J Res Bus Econ Manag 9(4):1–11

Shehzad CT, De Haan J (2015) Supervisory powers and bank risk taking. J Int Finan Markets Inst Money 39(1):15–24

Shen L, Xiong B, Hu J (2017) Research status, hotspotsandtrends forinformation behavior in China using bibliometric and co-word analysis. J Doc 73(4):618–633

Shleifer A, Vishny RW (1997) A survey of corporate governance. J Financ 52(2):737–783

Singh HP, Kumar S (2014) Working capital management: a literature review and research agenda. Qual Res Financ Mark 6(2):173–197

Tabak BM, Fazio DM, Cajueiro DO (2013) Systemically important banks and financial stability: the case of Latin America. J Bank Financ 37(10):3855–3866

Tahamtan I, SafipourAfshar A, Ahamdzadeh K (2016) Factors affecting number of citations: a comprehensive review of the literature. Scientometrics 107(3):1195–1225

Thakor AV (2018) Post-crisis regulatory reform in banking: Address insolvency risk, not illiquidity! J Financ Stab 37(1):107–111

Thomsen S, Pedersen T (2000) Ownership structure and economic performance in the largest European companies. Strategic Manag J 21(6):689–705

Tranfield D, Denyer D, Smart P (2003) Towards a methodology for developing evidence-informed management knowledge by means of systematic review. Br J Manag 14(3):207–222

Triki T, Kouki I, Dhaou MB, Calice P (2017) Bank regulation and efficiency: What works for Africa? Res Int Bus Financ 39(1):183–205

Tsay M, Shu Z (2011) Journal bibliometric analysis: a case study on the journal of documentation. J Doc 67(5):806–822

Vento GA, La Ganga P (2009) Bank liquidity risk management and supervision: which lessons from recent market turmoil. J Money Invest Bank 10(10):78–125

Wahid ANM (1994) The grameen bank and poverty alleviation in Bangladesh: theory, evidence and limitations. Am J Econ Sociol 53(1):1–15

Xiao Y, Watson M (2019) Guidance on conducting a systematic literature review. J Plan Educ Res 39(1):93–112

Xu X, Chen X, Jia F, Brown S, Gong Y, Xu Y (2018) Supply chain finance: a systematic literature review and bibliometric analysis. Int J Prod Econ 204:160–173

Yadav M (2011) Impact of non performing assets on profitability and productivity of public sector banks in India. AFBE J 4(1):232–239

Yong-Hak J (2013), Web of Science, Thomson Reuters

Zheng C, Rahman MM, Begum M, Ashraf BN (2017) Capital regulation, the cost of financial intermediation and bank profitability: evidence from Bangladesh. J Risk Financ Manag 10(2):9

Download references

Acknowledgements

Not Applicable.

Author information

Authors and affiliations.

Symbiosis Institute of Business Management, Symbiosis International (Deemed University), Pune, India

Shailesh Rastogi, Arpita Sharma & Venkata Mrudula Bhimavarapu

SIES School of Business Studies, Navi Mumbai, India

Geetanjali Pinto

School of Commerce and Management, D Y Patil International University, Akurdi, Pune, India

Venkata Mrudula Bhimavarapu

You can also search for this author in PubMed   Google Scholar

Contributions

‘SR’ performed Abstract, Introduction, and Data methodology sections and was the major contributor; ‘AS’ performed Bibliometric and Network analysis and conceptual framework; ‘GP’ performed citation analysis and discussion section; ‘VMB’ collated data from the database and concluded the article. All authors read and approved the final manuscript.

Corresponding author

Correspondence to Venkata Mrudula Bhimavarapu .

Ethics declarations

Ethics approval and consent to participate, consent for publication, competing interests.

The authors declare that they have no competing interests.

Additional information

Publisher's note.

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Open Access This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article's Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article's Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/ .

Reprints and permissions

About this article

Cite this article.

Rastogi, S., Sharma, A., Pinto, G. et al. A literature review of risk, regulation, and profitability of banks using a scientometric study. Futur Bus J 8 , 28 (2022). https://doi.org/10.1186/s43093-022-00146-4

Download citation

Received : 11 March 2022

Accepted : 16 August 2022

Published : 03 September 2022

DOI : https://doi.org/10.1186/s43093-022-00146-4

Share this article

Anyone you share the following link with will be able to read this content:

Sorry, a shareable link is not currently available for this article.

Provided by the Springer Nature SharedIt content-sharing initiative

• Bank performance
• Profitability
• Bibliometric analysis
• Scientometric analysis

LITERATURE REVIEW OF FINANCIAL PERFORMANCE AND FINANCIAL DISTRESS: LIQUIDITY AND PROFITABILITY ANALYSIS (FINANCIAL MANAGEMENT LITERATURE REVIEW)

• Sukenti Student of Master of Financial Management Program, University Terbuka, Indonesia

Literature article Reviewing the Effect of Liquidity and Profitability in the context of financial management, a scientific study titled Financial Performance and Financial Distress tries to provide a research hypothesis on the interaction between factors. This literature review was written using the library research approach, including information from online academic databases like Google Scholar, Mendeley, and others. The outcomes of this article's literature review are:1) Liquidity affects Financial Performance; 2) Profitability has an effect on Financial Performance; 3) Liquidity affects Financial Distress; 4) Profitability has an effect on Financial Distress; and 5) Financial Performance Affects Financial Distress; In addition to these 2 external factors that influence the endogenous variables Financial Performance and Financial Distress there are still other additional elements, like as Leverage, Solvency and Activity variables.

Agussalim, M., Ayu Rezkiana Putri, M., & Ali, H. (2016). Analysis work discipline and work spirit toward performance of employees (case study tax office Pratama two Padang). International Journal of Economic Research.

Agussalim, M., Ndraha, H. E. M., & Ali, H. (2020). The implementation quality of corporate governance with corporate values: Earning quality, investment opportunity set, and ownership concentration analysis. Talent Development and Excellence.

Aletheari, I. A. M., & Jati, I. K. (2016). Pengaruh Earning Per Share, Price Earning Ratio, Dan Book Value Per Share Pada Harga Saham. E-Jurnal Akuntansi Universitas Udayana, 17(2), 1254–1282.

Ali, H. (1926). Evolution of Tank Cascade Studies of Sri Lanka. Saudi Journal of Humanities and Social Sciences. https://doi.org/10.21276/sjhss

Ali, H., Mukhtar, & Sofwan. (2016). Work ethos and effectiveness of management transformative leadership boarding school in the Jambi Province. International Journal of Applied Business and Economic Research.

Ansori, A., & Ali, H. (2017). Analisis Pengaruh Kompetensi Dan Promosi Terhadap Kinerja Pegawai Negeri Sipil Pada Sekretariat Daerah Kabupaten Bungo. Jurnal Ilmiah Universitas Batanghari Jambi. https://doi.org/10.33087/jiubj.v15i1.198

Anwar, K., Muspawi, M., Sakdiyah, S. I., & Ali, H. (2020). The effect of principal’s leadership style on teachers’ discipline. Talent Development and Excellence.

Assagaf, A., & Ali, H. (2017). International Journal of Economics and Financial Issues Determinants of Financial Performance of State-owned Enterprises with Government Subsidy as Moderator. International Journal of Economics and Financial Issues

Bastari, A., -, H., & Ali, H. (2020). DETERMINANT SERVICE PERFORMANCE THROUGH MOTIVATION ANALYSIS AND TRANSFORMATIONAL LEADERSHIP. International Journal of Psychosocial Rehabilitation. https://doi.org/10.37200/ijpr/v24i4/pr201108

Chauhan, R., Ali, H., & Munawar, N. A. (2019). BUILDING PERFORMANCE SERVICE THROUGH TRANSFORMATIONAL LEADERSHIP ANALYSIS, WORK STRESS AND WORK MOTIVATION (EMPIRICAL CASE STUDY IN STATIONERY DISTRIBUTOR COMPANIES). Dinasti International Journal of Education Management And Social Science. https://doi.org/10.31933/dijemss.v1i1.42

Desfiandi, A., Fionita, I., & Ali, H. (2017). Implementation of the information systems and the creative economy for the competitive advantages on tourism in the province of Lampung. International Journal of Economic Research.

Djoko Setyo Widodo, P. Eddy Sanusi Silitonga, & H. A. (2017). Organizational Performance : Analysis of Transformational Leadership Style and Organizational Learning. Saudi Journal of Humanities and Social Sciences. https://doi.org/10.21276/sjhss.2017.2.3.9

Elmi, F., Setyadi, A., Regiana, L., & Ali, H. (2016). Effect of leadership style, organizational culture and emotional intelligence to learning organization: On the Human Resources Development Agency of Law and Human Rights, Ministry of Law and Human Rights. International Journal of Economic Research.

Harini, S., Hamidah, Luddin, M. R., & Ali, H. (2020). Analysis supply chain management factors of lecturer’s turnover phenomenon. International Journal of Supply Chain Management.

Hairiyah, S., & Ali, H. (2017). Customer Decision Analysis in Taking Multipurpose Loan : Promotions , Locations and Credit Procedures ( A Case of the Bank " PQR Jakarta "). Saudi Journal of Business and Management Studies. https://doi.org/10.21276/sjbms.2017.2.3.6

Haitao, N., & Ali, H. (2022). THE ROLE OF BANKING AND GOVERNMENT POLICY ON THE ECONOMIC SECTOR DURING THE COVID-19 PANDEMIC. Dinasti International Journal of Digital Business Management, 3(2), 161–169.

Limakrisna, N., Noor, Z. Z., & Ali, H. (2016). Model of employee performance: The empirical study at civil servants in government of west java province. International Journal of Economic Research.

Masydzulhak, P. D., Ali, P. D. H., & Anggraeni, L. D. (2016). The Influence of work Motivationand Job Satisfaction on Employee Performance and Organizational Commitment Satisfaction as an Intervening Variable in PT. Asian Isuzu Casting Center. In Journal of Research in Business and Management.

Munawar, N. A., & Saputra, F. (2021). Application Of Business Ethics And Business Law On Economic Democracy That Impacts Business Sustainability. Journal of Law Politic and Humanities, 1(3), 115–125.

Munawar, N. A., & Saputra, F. (2022). Determination of Public Purchasing Power and Brand Image of Cooking Oil Scarcity and Price Increases of Essential Commodities. International Journal of Advanced Multidisciplinary, 1(1), 34–44. No, P., Sanusi, A., Desfiandi, A., Ali, H., St, A. B., & Ct, R. A. (2017). PERFORMANCE-BASED ON THE HIGHER EDUCATION QUALITY IN PRIVATE COLLEGES. Proeeding MICIMA.

Pitri, A., Ali, H., & Us, K. A. (2022). Faktor-Faktor Yang Mempengaruhi Pendidikan Islam : Paradigma , Berpikir Kesisteman Dan Kebijakan Pemerintah ( Literature Review Manajemen Pendidikan ). 2(1), 23–40.

Prayetno, S., & Ali, H. (2017). Analysis of advocates organizational commitment and advocates work motivation to advocates performance and its impact on performance advocates office. International Journal of Economic Research.

Prayetno, S., & Ali, H. (2020). The influence of work motivation, entrepreneurship knowledge and advocate independence on advocate performance. International Journal of Innovation, Creativity and Change, 12(3), 147–164.

Prihartono, & Ali, H. (2020). The promises ethics and marketing concept strategy as a competitive advantage on private higher education (A survey on perception of product attributes and promotion mix in Indonesia). Talent Development and Excellence.

Richardo, Hussin, M., Bin Norman, M. H., & Ali, H. (2020). A student loyalty model: Promotion, products, and registration decision analysis-Case study of griya english fun learning at the tutoring institute in wonosobo central Java. International Journal of Innovation, Creativity and Change.

Riyanto, S., B, S., & Ali, H. (2017). The Influence of Workplace Spirituality and Oganizational Culture on Employee Engagement of Y Generation in PT. Krama Yudha Tiga Berlian Motors (KTB). The International Journal of Social Sciences and Humanities Invention. https://doi.org/10.18535/ijsshi/v4i7.05

Riyanto, S., Pratomo, A., & Ali, H. (2017). EFFECT OF COMPENSATION AND JOB INSECURITY ON EMPLOYEE ENGAGEMENT (STUDY ON EMPLOYEE OF BUSINESS COMPETITION SUPERVISORY COMMISSION SECRETARIAT). International Journal of Advanced Research. https://doi.org/10.21474/ijar01/4139

Riyanto, S., Yanti, R. R., & Ali, H. (2017). The Effect of Training and Organizational Commitment on Performance of State University of Jakarta Student Cooperative (KOPMA UNJ) Management. Saudi Journal of Humanities and Social Sciences. https://doi.org/10.21276/sjhss

Saputra, F. (2022a). Analysis Effect Return on Assets (ROA), Return on Equity (ROE) and Price Earning Ratio (PER) on Stock Prices of Coal Companies in the Indonesia Stock Exchange (IDX) Period 2018-2021. Dinasti International Journal of Economics, Finance and Accounting, 3(1), 82–94. http://repository.uph.edu/41805/%0Ahttp://repository.uph.edu/41805/4/Chapter1.pdf

Saputra, F. (2022b). The Role of Human Resources , Hardware , and Databases in Mass Media Companies. International Journal of Advanced Multidisciplinary, 1(1), 45–52.

Sudiantini, D. (2020). Empirical Testing of Climate Work as Moderating at Regional Public Service. 151(Icmae), 47–49. https://doi.org/10.2991/aebmr.k.200915.012

Sudiantini, D., & Dewi Shinta, N. (2018). Pengaruh Media Pembelajaran Terhadap Kemampuan Berpikir Kreatif dan Penalaran Matematis Siswa. Sintesa, 11(1), 177–186. http://ojs.umsida.ac.id/index.php/pedagogia/article/view/69/75

Sutiksno, SDU, Rufaidah, P., Ali, H., & Souisa, W. (2017). Tinjauan Literatur Pemasaran Strategis dan Pandangan Berbasis Sumber Daya Perusahaan. Int. J. Ekonomi. Res, 14(8), 59–73.

Widayati, C. C., Ali, H., Permana, D., & Nugroho, A. (2020). The role of destination image on visiting decisions through word of mouth in urban tourism in Yogyakarta. International Journal of Innovation, Creativity and Change.

Wangsih, D. (2021). Influence Of Leverage, Firm Size, And Sales Growth On Financial Distress (Empirical Study on Retail Trade Sub-Sector Companies Listed in Indonesia Stock Exchange Period 2016-2020). International Journal of Economics, Business and Accounting Research (IJEBAR), 5(4).

Widodo, D. S., Silitonga, P. E. S., & Ali, H. (2020). The influence of good governance, culture, and performance in increasing public satisfaction and implication to public trust: Study in Indonesian government. Talent Development and Excellence.

Yacob, S., Sucherly, Sari, D., Mulyana, A., & Ali, H. (2020). An Optimising strategy for minimarket modern retail business performance in Indonesia. International Journal of Innovation, Creativity and Change.

• DOWNLOAD ARTICLE FULL PDF

Authors who publish their manuscripts in this journal agree to the following conditions:

• The copyright on each article belongs to the author(s).
• The author acknowledges that the Dinasti International Journal of Digital Business Management (DIJDBM) has the right to be the first to publish with a Creative Commons Attribution 4.0 International license  (Attribution 4.0 International (CC BY 4.0).
• Authors can submit articles separately, arrange for the non-exclusive distribution of manuscripts that have been published in this journal into other versions (e.g., sent to the author's institutional repository, publication into books, etc.), by acknowledging that the manuscript has been published for the first time in the Dinasti International Journal of Digital Business Management (DIJDBM).

• Peer Reviewers
• Peer Review Process
• Aim and Scope
• Publication Ethics
• Online Submission Guidelines
• Article Processing Charge
• Open Access Statement
• License Term
• Histori Jurnal
• Plagiarisme Policy
• Archive Policy
• Author Guidelines

E-ISSN: 2715-4203

P-ISSN: 2715-419X

EDITORIAL OFFICE

Casa Amira Prive Jl. H. Risin No. 64D Pondok Jagung Timur, Serpong Utara, Tangerang Selatan, Indonesia

Unipark Condominium, Block D 3-9 Selangor, Malaysia

Singapore 655B Jurong West ST 61#12-542 Singapore 642655

Dinasti International Journal of Digital Business Management (DIJDBM) is managed and published by Dinasti Publisher  under the auspices of the  Yayasan Dharma Indonesia Tercinta (DINASTI)  and in collaboration with several institutions, the Faculty of Education, the National University of Malaysia, Faculty of Economics, Krisnadwipayana University, Faculty of Economics and Business, Winaya Mukti University, Bandung, Faculty of Economics, Muhammadiyah University Cirebon, Corruption Supervisory Commission (KPK Tipikor), Ekasakti University, Padang Indonesian Academy of Accountancy, Piksi Ganesha Polytechnic, Bandung, Bogor Academy of Technology, Bogor Telecommunication Academy, Indonesian National Tourism Academy, Bandung, Indonesian Polytechnic Piksi Ganesha, Kebumen, STIES Indonesia Purwakarta, STMIK Farewell, Kerawang and STIE Mahaputra Riau.

CONTACT INFO

https://dinastipub.org/DIJDBM

DIJDBM INDEX

• No results found

FINANCIAL MANAGEMENT

Chapter 2: literature review and theoretical framework, 2.3 financial management.

Good financial management is a critical element of municipal management as it enables municipalities to plan, organise and allocate financial resources effectively and efficiently while also giving effect to their responsibility to remain accountable for their decisions to the people who they serve. In this section the four essential components of public financial management: budgeting, accounting, reporting and auditing, are discussed including their applications for municipalities. These components are discussed in this specific order as it will then be easy to show the linkages and interactions of one to the other.

2.3.1 Budgeting

A budget is an operational and financial plan for the subsequent financial year that municipalities must develop annually to realise local government goals and objectives using both financial and non-financial information. Financial information contains estimations of available financial resources while non-financial information relates to community needs, policy and political concerns. Budgets are developed in terms of a process – the budget process – which commonly starts several months before the start of a financial year. This process is important in order to map a municipality’s choice of expenditure priorities as well as to identify the resources that are needed to realise planned expenditures.

Farvacque-Vistorik and Miholy (2014:94) cite Mikesell, 2011, who states that “ The Budget process provides the medium for determining, what government services will be provided and how they will be financed ”. Budgeting in local government is thus the process of allocating

limited resources in an environment of unlimited demand/need for a specific financial year, and since the inception of the MFMA in July 2004, multiple financial years. This will be discussed in detail later in the next chapter. A budget includes the information regarding types

SOG (M. ADMIN. DEGREE) JANUARY 2016 25 and amounts of expenditure as well as the proposed revenue streams to finance the expenditures.

A budget can be used as an instrument to improve planning. As stated previously, a budget is essentially a financial plan which implies that a certain amount of planning must go into the development of the budget. The adoption of a budget implies that decisions were made on the basis of a planning process in terms of how a municipality plans to achieve its goals and objectives. The function of planning is thus of major importance in any government institution, in order to ensure that decisions to provide goods and services are for the good and in the interest of the public. Also, that those decisions are informed taking into account the vast scope and diversity of government activities and that planning and decision-making is participatory, meaning that it should be implemented in consultation with the community that it serves.

Budgets are also instruments of financial control. They should be used by council, the executive and administrative branches of government. For example, the Mayor or Municipal Manager can apply the budget to monitor actual expenditure against the expenditure planned at the beginning of the financial year. Similarly, and perhaps more importantly, directors and line managers within the different departments in a municipality can use the budget to monitor and control expenditures and revenues. This can improve operational efficiency and accountability as council – who has oversight over the implementation of the budget – can use the information generated from actual implementation and planned implementation to monitor whether resources are applied efficiently to address the priorities that were identified in the budget planning process. In addition, the control function in budgeting not only includes the curbing of expenditures within the limits of available funding but also ensures that the approved budget is implemented and that financial reports generated from the budget information are accurate. This function also allows for the documentation of information for cost estimates that can be used in the preparation of subsequent budgets.

SOG (M. ADMIN. DEGREE) JANUARY 2016 26 Budgets for municipalities commonly combine two budgets: an operating budget and a capital budget. Operational budgets are usually larger and contain more detail than capital budgets; operational budgets include income/revenues from current year transactions and also provide for expenditures during the same financial year. Capital budgets contain income from capital transactions (sale of property, loans, and capital grants) as well as the expenditure for infrastructure and goods whose useful life extends beyond one year.

Farvacque-Vistorik and Miholy (2014:95) propose the following three principles of a good budget that should be kept in mind when preparing local government budgets: firstly, broad goals to guide government decision-making should be established followed by credible approaches for achieving goals that have been set by the development of appropriate programmes and strategies; secondly, the local government should be equipped with a budget that is consistent with the goals and approaches that have been decided upon; and finally the local government should be enabled to monitor and evaluate its performance and to make adjustments to meet the contingencies and changing circumstances.

There are some commonalities between these principles and the current legislation governing budget planning and subsequent adoption for local government in South Africa. Both the MSA, 2000 (Section 23(b)) and the MFMA, 2003 (Section 21(a)) allow for the establishment of objectives and goals that must guide decisions in terms of the budget. Credible approaches to achieve these objectives and goals find execution in terms of the Service Delivery Budget Implementation Plan (SDBIP), MFMA, 2003 (section 53(1)(c)(ii)) which the Mayor must approve within 28 days of the adoption of the budget. The IDP, which is the principle planning document of a municipality and identifies the objectives, goals and development programs and projects in the medium to long term, must be supported by a credible budget. The above legislated practices and approaches find relevance in budget principles 1 and 2 as proposed by Farvacque-Vistorik and Miholy.

In practice this means that no project or program can be supported or allowed for in the municipal budget if it was not identified and approved in the municipality’s IDP, thus finding

SOG (M. ADMIN. DEGREE) JANUARY 2016 27 common ground with budget principle 3 above. Finally, Chapter 6 of the MSA, 2000 compels municipalities to approve and adopt a performance management system. Section 41(c) of the MSA, 2000, allows for the monitoring of performance as well as the measurement and review of performance. Adjustments can be made within the financial year if the performance evaluation shows that they are necessary due to circumstances beyond the control of the executive or administration of council. The budget may also be adjusted if the key performance indicators that were adjusted are linked to it. This is definitely linked to the fourth budget principle above.

2.3.2 Accounting

The basic concepts of accounting will be discussed in this section and specifically the role that accounting plays as the basis for the documentation, classification and organisation of financial information in a methodical manner. A brief discussion about the types of accounting, including their relationships to the auditing function as well as the current prevailing accounting standards, is outlined.

The role of accounting is to provide accurate, timely and complete information regarding revenues, expenditures, as well as assets and liabilities. In a municipality, this information may include billed amounts for municipal services provided, payments received as well as payments to employees, vendors and contractors. Information generated from accounting systems informs council, management and any external stakeholders about the financial resources, efficiency of financial management and financial position of a municipality, during and at the end of a financial year. The identification of the manner in which transactions and proceedings are described in financial reports and the design of systems that enable the easy production of meaningful reports as well as operational control systems are all concerns of accounting.

Several types of accounting exist that fulfil a specific role in the financial management of entities and organisations. Farvacque-Vistorik and Miholy (2014:110) are of the opinion that

SOG (M. ADMIN. DEGREE) JANUARY 2016 28 the majority of accounting types include financial accounting, management accounting, cost accounting and public sector or commercial accounting. A short description of each is given below.

Financial accounting uses financial information to generate reports on the financial transactions and financial position of an entity. Cost accounting generates information on the cost of operations and assists with the measurement and control of the costs of individual services and functions. Management accounting uses the statistics and information generated from cost accounting in order to produce reports that will assist management in decision making. This is done by using a number of different analytical and presentation methods. Public sector and commercial accounting are similar with regard to their elementary principles. The differences come into play when specific accounting practices are preferred and suited for specifically government or commercial organisations.

However this difference has become less pronounced in recent times in South Africa because municipalities are currently moving from cash-based accounting to accrual-based accounting. The Accounting Standards Board (ASB) of South Africa issued a framework for the preparation of financial statements for entities within the public sector, which includes municipalities, in June 2004. This is similar to, for example, in the United States where the Government Accounting Standards Board (GASB) sets standards for government accounting. In March 2009, the ASB also issued a framework determining the GRAP reporting standards. Accounting standards are an enabler for accountants to apply a common method in terms of how financial transactions are to be treated and reported on, so as to ensure the comparability of financial reports.

The accounting of financial transactions differs subject to the basis of accounting or when the transaction is recorded, meaning that if it is recorded at the time of its occurrence or when cash is exchanged. With cash-based accounting, financial transactions are only recorded with the exchange of money. Income is recorded when cash is received and expenditure is recorded

SOG (M. ADMIN. DEGREE) JANUARY 2016 29 when it is actually paid. Accrual-based accounting does not take the exchange of cash into account. Revenue is recorded when earned and expenditure is recorded when incurred and not necessarily when the actual cash has been received or paid. It is also recorded as such in the financial statements.

Traditionally local governments in South Africa used cash-based accounting, but with the implementation of the MFMA, 2003, as well as the changes to the reporting systems and standards as described above, the change was made to accrual-based accounting. Farvacque- Vistorik and Miholy (2014: 127) are of the view that as local governments progressed into distinct and autonomous organisations it became necessary to adopt and implement accounting systems and procedures more suited to their business requirements. This view is supported by the changes in accounting types, basis of accounting and reporting standards that emerged as the MFMA, 2003, was implemented by municipalities in South Africa, from July 2004.

The ultimate purpose of accounting systems is to allow for the efficient recording of financial data and to use this data to compile financial reports. Typically, the financial reports for municipalities are made up of the following three financial statements: Statement of Financial Position (Balance Sheet), Statement of Financial Performance (Income Statement), and Cash Flow Statement.

 Statement of Financial Position

This financial statement, also called the balance sheet, depicts the financial position of a municipality at any given date or, in the case of annual financial statements, at the end of the financial year. In the case of public entities such as municipalities, the statement is comprised of two components, namely assets and liabilities. The Statement of Financial Position assists in the assessment of financial security of the municipality in terms of liquidity as well as financial and credit risk.

SOG (M. ADMIN. DEGREE) JANUARY 2016 30  Statement of Financial Performance

This financial statement is also called the income statement and it depicts the financial performance, reports on total revenues and total expenditures. In other words, it shows how much income was earned and what the municipality spent during a particular financial year. This statement provides a sense of how well a municipality is functioning.

 Cash Flow Statement

This financial statement depicts a presentation of the movement of cash over the financial year, and it is classified under operating, investing and financing activities. It gives the user a significant understanding of the liquidity and growth of the municipality because it shows the net increase/decrease in cash and cash equivalents over a specific period. This information can assist analysts – especially if historic information is analysed over a number of years – to project future cash flows in order to provide input into future economic decisions. When the main changes in the financial position over a period are summarised, this statement can highlight certain priorities for management. For example, if a municipality decides to increase capital expenditure to provide new infrastructure it may indicate a higher future revenue stream to fund the operations, maintenance and replacement of the infrastructure within the future operational budgets of that municipality.

The key function of municipalities is to provide quality services to the citizens in an efficient and effective manner. As the financial and human resources to provide these services are becoming increasingly scarce, it becomes more important for councils and senior management to have intimate knowledge of the finances of the municipality. Accounting and the establishment of accounting systems that enable the efficient recording and gathering of financial data as well as the analysis and structured presentation of this data will make it useful for councils and management to make well-informed future decisions.

SOG (M. ADMIN. DEGREE) JANUARY 2016 31

2.3.3 Financial Reporting

Financial reports are comprised of a combined set of financial information. They are a means of providing information to users to make choices and decisions about how the limited resources in local government need to be applied. These reports may also be used for financial performance monitoring which will be discussed later. Potential users of financial reports in local government include investors, employees, creditors, suppliers and perhaps more importantly, the citizens and other spheres of government such as the provincial and national treasuries as well as sector departments.

The ASB issued a framework for the preparation and presentation of financial statements in June 2004, which has subsequently been regularly amended to specifically allow for the phased implementation of certain GRAP standards. The purpose of the framework is to set out principles on which standards of GRAP will be based for the public sector. The specific significance of these standards, for the purposes of this study, are the qualitative characteristics of financial statements which are required for good financial reporting and the attributes that make the information provided in them useful to the users.

According to the ASB (2004:13), there are four principle qualitative characteristics: understand-ability, relevance, reliability and comparability, which will be discussed.

Understand-ability

Information provided in the financial statements should be easily understandable to the users. For this purpose it is assumed that the users have a reasonable knowledge of government, its activities and environment and its accounting, and in addition, they have an inclination to attentively study the information. The ABS is of the opinion that information about complex matters should not be excluded if there is a perception that it would be difficult for the users to understand. The full information is important as it can influence any decisions made by the users in some way or another. Also, when the competency of the users is considered it may

SOG (M. ADMIN. DEGREE) JANUARY 2016 32 not be fitting to assume that they will have realistic knowledge of “ accountability, stewardship and political objectives ”. Should financial statements be useful to a large range

of users for general purposes, it is expected that the preparers thereof may assume a reasonable knowledge to be able to use such statements. The ABS indicates that in cases where a reasonable knowledge does not exist, the role of oversight and regulatory bodies, for example the internal audit committee, Municipal Public Accounts Committee (MPAC) or a local business chamber, becomes important. When these committees or public representative forums are well-supported by council and manned by competent and unbiased members, they may have the ability to represent the interest of the taxpayers to a large extent.

Information must be relevant to the decision-making wants of the users in order to be useful and it is relevant when it has the ability to guide proper stewardship by assisting users in evaluating past, present and future events/actions or if it confirms and improves past evaluations done by the users. Information relating to financial positions and financial performance can often be used as a benchmark for predicting or forecasting future financial position and performance. Therefore financial information must be predictive in nature. The ABS (2004:14) states that the ability to effect predictions from financial statements is enhanced by the way in which past information is displayed. It makes the example that revenue and expenditure items of a significant size, nature or incidence should be separately disclosed to improve the informative value thereof.

Materiality

Information relevancy is impacted by its nature and materiality. Relevancy, in some cases, can be determined by the sufficiency of the nature of the information alone, while in other cases both nature and materiality are important. Information becomes material if its exclusion, misstatement or the non-disclosure thereof may have an impact on the decisions which were made by its users on the basis of the financial statements. The size of items or the judgement error regarding circumstances of exclusion, misstatement or non-disclosure in the financial

SOG (M. ADMIN. DEGREE) JANUARY 2016 33 statements determines a cut-off point or threshold instead of being a primary qualitative characteristic of useful information. For example, the NT may determine that for an item such as unauthorised expenditure to be material, it may not be more than a certain percentage of total expenditure. Any amount above the cut-off percentage point will be regarded as material by the AG and will be reflected as such in the notes to the annual financial statements.

Reliability

In order for information to be useful it also needs to be reliable. Reliable information does not have any material errors and bias and can be relied on by users to faithfully depict that which it purports to or reasonably expects to represent. Financial information must also be tested against the following principles in order to be considered reliable.

• NEW PUBLIC MANAGEMENT (NPM)
• FINANCIAL MANAGEMENT (You are here)
• MUNICIPAL DEMARCATION ACT, NO 27 OF 1998
• MUNICIPAL SYSTEMS ACT, NO 32 OF 2000
• MUNICIPAL FINANCE MANAGEMENT ACT, NO 56 OF 2003
• ANALYSIS OF DATA OBTAINED FROM INTERVIEWS
• OBSERVATIONS AND LESSONS LEARNT FROM THE RESEARCH
• FACTORS THAT CONSTRAIN OR ENABLE FINANCIAL SUSTAINABILITY
• RECOMMENDATIONS FOR IMPROVING FUTURE FINANCIAL

Related documents

• Subscribe Newsletter
• Track Paper
• Conferences

International Journal of Research and Innovation in Social Science (IJRISS)

•                              ISSN No. 2454-6186
•                                                                       Strengthening Social Sciences for the Future
• May Issue 2024
• Research Area
• Initial Submission
• Revised Manuscript Submission
• Final Submission
• Review Process
• Paper Format
• Author (s) Declaration
• Registration
• Virtual Library
• Apply as Reviewer
• Join as a Board Member
• Eligibility Details & Benefits
• Board Members

The Best Practices of Financial Management in Education: A Systematic Literature Review

• Ruel S. Vicente
• Loyd C. Flores
• Ronald E. Almagro
• Mary Rose V. Amora
• Jocel P. Lopez
• Sep 4, 2023
• Accounting & Finance

Ruel S. Vicente, Loyd C. Flores, Ronald E. Almagro, Mary Rose V. Amora, Jocel P. Lopez

Davao del Norte State College

DOI: https://dx.doi.org/10.47772/IJRISS.2023.7827

Received: 26 July 2023;  Accepted: 29 July 2023; Published: 04 September 2023

This study explored the literature on the best practices of Financial Management in Education utilizing a systematic review analysis design. This study aimed to answer the following questions:  1. The demographic data in the existing literature on the the best practices of Financial Management in Education in terms of country, research design, and the number of participants. 2. The best practices of Financial Management in Education, and 3. Suggestions for further research can be identified by exploring the current literature on an educational strategic direction based on the elements of financial management. As a result of the systematic analysis showed themes on the best practices of Financial Management in Education as

According to the demographics of the literature, Western countries and Southeast Asia conducted very few studies on best practices of financial management in education Therefore, this integrated and systematic study of the educational literature on the best practices and financial management sought to identify the key best practices of financial management in education. Finally, we hope that the framework offered by this study and the overview of the difficulties presented here will help to improve school leaders’ practices in strategic financial management and serve as the basis for future research and policy decisions.

Keywords : Financial Management, Financial Planning, Resource Management, and Best Practices

INTRODUCTION

According to Gitman (2003), finance is the art and the science of managing money and is concerned with the process, institutions, markets and instruments involved in the transfer of money among individuals, institutions (including schools) and governments. School principals like any leaders of any organization have decisions to make when it comes to utilization of the funds channeled to public schools (Atieno, 2012). These decisions according to Brigham and Houston (2012) have financial implications on the financial management of school principals who play the most crucial role in ensuring schools’ effectiveness and performance taking into account the day-to-day operations of the school (Ballada and Ballada, 2012).

Republic Act No. 9155 in the Philippines or commonly called as Governance of Basic Education Act of 2001 mentioned how school principals are expected to administer and manage all personnel, physical and fiscal resources of the school. In any organization, it is very important that the financial management of its leader is properly and prudently observed considering that this may lead to further success. A study defined financial management as dealing with the sources of funds, their efficient use of and minimization of cost or losses for the greater profitability. This productivity is generally intended for business in ministerial departments and post primary institutions. Similarly, it is for the enhanced welfare of students and both the teaching and non-teaching staff.

The school head’s efficient and effective management of financial or material resources is considered one significant factor in the attainment of institutional objectives. On the other hand, inappropriate and inconsistent exercise of financial management may cause failure in terms of financial difficulties and mismanagement of resources. In the end, an excellent and improved performance is the ultimate aim of every organization as they align well their financial management systems by wisely observing applicable and advantageous practices. In the school setting, the financial management of school heads prevail when they have basic knowledge and clear understanding of the basic processes involved in managing school’s account, the budgeting process and the systems and controls that are necessary to ensure that the school’s finances are not misappropriated, (Clarke, 2008). School financial management involves the planning and implementation of a financial plan, accounting, reporting and the safeguarding of assets from loss, damage and fraud. Basically, the level of school heads’ financial management can usually be determined through their formal education, on the-job training and experiences. Sometimes, their personal or individual characteristics are also considered respectively.

Furthermore, to manage diverse financial resources in school is as simple as handling your own finances, properties or assets. If a school administrator has enough capability on budgeting, accounting, procurement and asset management, he is not easily tempted or cannot simply commit erroneous spending. The school head will not go far beyond the financial allotment which is consistent with the approved School Operating Budget (SOB), Annual Procurement Plan (APP), Monthly Disbursement Program (MDP), Project Procurement Management Plan (PPMP) and other financial management plans. If a school head is properly directed and guided by existing rules and regulations, guidelines and policies involving financial management and has appropriate stewardship and ethical leadership orientation, he or she can minimize or manage the number of challenges usually experienced in the field. Some problems and other sources of conflict and misunderstanding in the organization will eventually be controlled.

There is evidence on the lack of comprehensive studies on best practices in the field of financial management. While there is some research available on financial management practices in educational institutions, there is a need for more rigorous and systematic investigations that identify and evaluate the most effective strategies and approaches for managing finances in education. Specifically, there is a need for research that examines the implementation and impact of financial management practices such as budgeting, resource allocation, cost control, and financial accountability measures in educational settings. This research could investigate how different practices are being used in various educational contexts and their effects on student outcomes, school performance, and overall financial sustainability.

Furthermore, there is a lack of comparative research that evaluates the effectiveness of different financial management practices across different educational systems or countries. Such studies could provide valuable insights into the transferability and adaptability of best practices in different contexts. By addressing these research gaps, policymakers, school administrators, and financial managers in the education sector can gain evidence-based guidance on the most effective financial management practices to improve resource allocation, enhance educational quality, and ensure long-term financial sustainability.

Research Questions

The study tends to conduct a systematic review analysis of the existing literature about the best practices of financial management in education. It aims to answer the following research questions:

• What demographic data is in the existing literature on the best practices of financial management in education in terms of country, research design, and the number of participants?
• What are the best practices of financial management in education? and
• What suggestions for further research can be identified by exploring the current literature in financial management based on the elements of strategic financial management in education?

METHODOLOGY

This study employed a methodical review and analysis design. One of the most important requirements for a high-quality review article is that it follows a predetermined methodology, carefully selects and evaluates articles, and surveys the field on a regular basis to discover the most recent advancements (Snyder, 2019). Systematic meta-analyses study results and ranks them in terms of quality (Ahn & Kang, 2018). A systematic review is a statistical method that is commonly used in systematic reviews for statistically combining the findings of multiple research studies to produce a pooled estimate of treatment impact. This is also a primary concern for Ranganathan and Aggarwal (2022). As a result, systematic reviews provide the most credible evidence (Chandler et al., 2019). This systematic review was carried out using the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) reporting checklist, as shown in Figure 2. (Prisma;Liberati et al. 2009). Identification, screening, eligibility, and inclusion are the four stages of the process with thorough literature search for this investigation in order to find articles that included systematic reviews.

Figure 1: Information flow between the various stages of a systematic review

Searching, Screening, and Data Extraction

The study’s primary database-search tool was Google Scholar, which was used to find relevant literature that could be included in it. Google Scholar was selected because of its advanced search tool, which allows users to specify their preferred functional words, the section of the paper in which they were used, and the year of publication. It also includes statistics and full-text versions based on inclusion and exclusion criteria. We used Google Scholar and the “advanced search” feature to find relevant reviews. We specified that the inclusion criteria should be based on the titles of the articles, and we used keywords like “Financial Management” “Best Practices” of “Public Schools” during the search. This method produced a total of 4,570 results. We then reduced the number of articles to 1,320 by narrowing the publication year range to 2018-2023. We were able to refine our search and obtain a more focused set of reviews from recent years by following these steps.

During the process, there were several duplicates. We exported the articles using Microsoft Excel and sorted them from A to Z to quickly eliminate the duplicates. As a result, 67 items remained. Only articles written in English were included in the analysis, resulting in the identification of 31 sources and the exclusion of 36 articles. Because the researchers could not access the 7 eliminated publications, they only kept 24 sources from these 26 journals. The number of papers was then reduced to 17, excluding seven that had not been administered in Southeast Asia.

Furthermore, we screened the articles by focusing primarily on the key elements of educational financial management. Table 1 shows the eligibility criteria that determined which articles were included and excluded for this review’s inclusion and exclusion standards.

Table 1 . Inclusion and Exclusion Criteria of the Systematic Review

Search Strategy

            In this study, the documentation of the analysis process and inclusion criteria was done in accordance with the rules. We searched Google Scholar for relevant works. We used the “advance search” option and selected inclusion criteria such as “in the title of the article” and the year between 2018 and 2023 to quickly compile the most recent and relevant articles. The documentation of the analysis process and inclusion criteria in this study was done in accordance with the systematic flow.

Data Extraction Procedures

This systematic review has extracted the names of the authors, the year of publication, the country, the study design, participant characteristics, the study aim, the results and discussion, the conclusion, the recommendations, and the implications for strategic planning in education for ease of reference, navigation, and citation. Table 2 contains the studies that were reviewed for strategic planning in education. They were all taken from Google Scholar.

Table 2. Reviewed Studies on strategic planning

Data Analysis

During the final listing of the literatures, simple tabulations of demographic data in terms of the study year, nation, and subject area were made using Microsoft Excel. A comparison of various literatures was considered in order to overcome the outdated professional development skills in public schools. The analyzed data were also presented graphically to provide a general picture of the entire data set.

RESULTS AND DISCUSSION

Ten peer-reviewed articles came from three different countries. These were distributed as follows: Philippines (15), Indonesia (1) and Malaysia (1). Fifteen (15) studies (88%) focused on public school (3) studies (22%) focused on higher education. (see Table 3). It can be assumed that there was an approximately equal distribution of qualitative and quantitative study designs throughout the publications on key elements of educational financial management. The sort of study and research design utilized are affected by the quantity of participants.

The summary of the research emphasis for all relevant literature is shown in the last row following the review analysis. Additionally, the readers were informed of the study’s purpose(s) and expected that the posed research questions would be addressed.

Table 3. Distribution of the Reviewed Studies by Country and by Educational Level  

The next section displays the outcomes of the framework’s components. The first section focuses on demographic information from the body of literature on the key elements of educational financial management, including nation, research design, and participant count. The key elements of educational financial management are identified in the second part. The third section then explores ideas for additional research that emerge from a review of recent works on educational financial management built on the principles of financial management.

Demographic Data on the Existing Literatures on the Salient Characteristics of Educational Financial management

Table 4 summarizes the full-text publications and journals reviewed for the salient characteristics of educational financial management and the nation in which the study was done, research methodologies, participant numbers, and study objectives. As seen in the table, Philippines (15), Indonesia (1) and Malaysia (1) were the countries from which the studies were from. The quantity of qualitative and quantitative research designs used throughout all literature about salient characteristics of educational financial resource management may be inferred to have been roughly unbalanced and must be trimmed more from Asian source to Southeast Asian Sources.

Table 4. Demographic of the Various Literature

Best Practices in Financial Management in Education                       

Based on a thorough review of the ten (17) articles, four (4) emerging themes on the Best Practices In Financial Management in Education: Increasing Accountability, Efficiency in Budgeting, Procurement transparency and optimization, and Sustainability and Asset Management, as shown in Table 5.

Table 5. Themes on  Best Practices in Financial  Management Practices in Education

Increasing Accountability and Financial Literacy

               The first emerging themes Increasing Accountability and Financial Literacy as best practices in financial Management in Public Education, the characteristic, as shown above, are Improved financial management capabilities and Financial Decision Making-skills

Improved financial management capabilities . The concept of financial management in schools describes the process of ensuring that school leaders plan, organize, delegate and control the funds of the school to achieve its goals (Styles, 2018). Effective financial management skills should improve financial well-being in a positive way and failure to manage finances well can lead to long term negative social consequences. The financial management is a key factor in knowing how the school is effectively managed or if it is able to realize its objectives, Ajaegbo (2020). The active participation of various stakeholders, including teachers in school governance and decision-making processes such as finance related matters (Chaka 2019)

Moreover, the principal must have a basic understanding of financial management so as to give the necessary instructions, as the head of the school. According to Brunet et al (2020), the financial Managers skills, competence and the trust that persons establish with the head teacher are invaluable. Likely, management skills receive increasing concern from researchers in recent years.

Financial decision making skills. Assist people in making wise financial decisions by encouraging problem-solving, logical thought, and a comprehension of fundamental financial principles (Surendar & Sarma, 2018).  Magak (2013) opined that educational leaders require training in financial decision making skills to assist them advance. Financial management at schools. Building on a related notion, Phylisther, Mulwa, and Kyalo (2018) claimed that financial decision making skills become necessary for school heads in order to ensure they have the necessary skills.

Furthermore, As supported by Pagaduan (2020), Financial decision making skills is the capacity to use information and skills to successfully manage financial resources for long-term financial security. It is how people interact with one another to acquire awareness of their financial condition and discover ways to improve it over time by forming the financial habits of saving, budgeting, planning, and subsequently making the appropriate financial choices.

Efficiency in Resource Allocation and Budgeting

Emerging Feedback in Financial Management Best Practices of Public Schools’  Efficiency in Resource Allocation and Budgeting, the following characteristics are: Prioritization of Needs, Regular Review and Evaluation and Collaboration and Stakeholder Involvement

The prioritization of needs . Procurement is not only important for resource allocation, but it is also directly related to the efficiency of fund management. Organizations can maximize the impact of available resources by prioritizing needs and allocating funds to address the most pressing needs first (Abag, 2019). This ensures that limited funds are allocated where they can generate the highest return on investment and drive organizational objectives. According to Sambal (2019) by aligning procurement priorities with available funds, organizations can optimize the utilization of financial resources, minimize waste, and achieve greater efficiency in fund management. This allows for a more strategic allocation of funds, resulting in cost savings and improved overall financial performance.

Regular Review and Evaluation . A financial review and evaluation regularly examines the financial operations of the firm as a whole, comparable to gaining a complete glimpse of one’s money. In most cases, a high-level financial evaluation suffices to ensure fair behavior (Ampongan, 2019). Consequently, a financial assessment and evaluation help identify potential financial risks and weaknesses, enabling organizations to proactively address concerns or dangers that may impact their operations. This is achieved through the examination of financial accounts, cash flows, and risk exposures. As a result, risk management is encouraged, and the severity of financial difficulties is minimized before they escalate into more serious issues.

Collaboration and Stakeholder Involvement . Collaboration and stakeholder participation are critical in improving an organization’s fund utilization efficiency. By involving relevant stakeholders in the procurement process, organizations can benefit from their expertise, insights, and diverse perspectives, such as finance teams, budget holders, and department heads (Cuenca, 2019). This cooperative approach ensures that the distribution of funds is consistent with the organization’s strategic goals and priorities. Participating stakeholders improve the identification and understanding of the specific needs and requirements of various departments, which leads to more accurate budgeting and resource allocation (Collantes, 2021).

Lastly, Salam & Sedik-Salam, (2018) highlighted that with such a strategy, the school can also avoid duplication of effort, streamline processes, and find opportunities for cost optimization by encouraging open communication and collaboration. Overall, collaboration and stakeholder participation ensure that funds are allocated in a way that maximizes value and supports the overarching goals of the organization, which helps to ensure efficient use of resources.

Procurement Transparency and Optimization

               Emerging Feedback in Financial Management Best Practices of Public Schools’  Procurement Transparency and Optimization, the following characteristics are: Conduct of Internal Auditing and Board Strategic Procurement Planning.

Conduct of Internal Auditing.   The internal audit activity encompasses, among others, the appraisal of the adequacy of internal controls, conduct of management audit and evaluation of the results of operations, focusing on control effectiveness of operating systems, and its support service systems. According to Suleiman et all, 2018, internal control system is defined as the policies and procedures which are put in place to ensure that the assets of an organization are protected and they are reliable for financial reporting. Internal control of organizations is meant to ensure the efficiency and effectiveness of activities, reliability of information, compliance with applicable laws and timeliness of financial reports (Jokipii 20019 and Changahit et al, 2021).

               According to Rosalid and Downes (2019), to prevent fraud in school finances, the principal should come up with clear procedures and responsibilities. These include separating staff duties, delegation of procurement authorization and also exercise effective supervision to make sure that rules and regulations are adhered to. Kaharisa (2020).

Board Strategic Procurement Planning . Sometimes referred to as strategic sourcing, is the long-term strategy to guarantee a timely supply of goods and services that are essential to an organization’s capacity to achieve its primary goals (Lopus, et. al 2019). Strategic procurement planning is essential for streamlining the procurement process, controlling costs, and improving overall organizational effectiveness in the field of financial management techniques. This operational debate looks into the useful applications and advantages of strategic procurement planning, as emphasized by the  (Lopus, et. al 2019).

As supported by Spekman, (1989). Emphasizes the importance of strategic planning as a key element of financial management procedures. Organizations may make sure that their procurement operations are in line with their larger financial goals and objectives by having a clear procurement strategy. This will help to ensure that the decisions made about procurement are profitable in the long run. Moreover, integrating strategic procurement planning into financial management procedures has various advantageous effects on operations. Organizations can use it to better their overall procurement performance, reduce risks, manage costs, build strong supplier relationships, and connect procurement activities with financial goals. In today’s dynamic business climate, firms can enhance their financial outcomes, boost efficiency, and achieve sustainable growth by using strategic procurement planning.

Sustainability And Asset Management

Emerging Feedback in Financial Management Best Practices of Public Schools’ Sustainability and Asset Management, the following characteristics are: Conduct of Internal Auditing and Board Strategic Procurement Planning.

Proper Asset Tracking and Maintenance . Proper asset tracking and maintenance are critical in schools for assets to last and perform optimally, to reduce costs, and to create a safe and favorable learning environment (Ramirez & Amponin, 2019). Repairs and upgrades should be addressed promptly to minimize downtime and improve asset performance. Staff responsible for asset tracking and maintenance should receive training and have clearly defined roles and responsibilities. Compliance with safety regulations is essential, and accurate documentation and record-keeping of all maintenance activities should be maintained (Ampongan, 2019).

Asset Accountability . In schools, IT equipment, laboratory tools, and educational materials are frequently valuable assets. Asset accountability, which includes maintaining accurate records, conducting regular inventory checks, and implementing appropriate security measures, aids in the prevention of asset loss, theft, or unauthorized use.

It deters potential perpetrators while also instilling in the school community a sense of responsibility and security.

CONCLUSIONS AND RECOMMENDATIONS

This systematic literature review on the “Best Practices of Financial Management in Education: A Systematic Literature Review” aims to give numerous pertinent studies. Additionally, Preferred Reporting Items for Systematic Reviews and Meta-Analysis (PRISMA) assisted in identifying studies that were appropriate for inclusion in a full review. The implementation of educational plans must also be taken into account when determining research that underwent a thorough review.

Additionally, content analysis was used to combine the Best Practices of Financial Management in Education in order to avoid duplication when gathering the data. The application of thematic analysis, which concentrated on the newly developing themes of the execution of educational strategy evaluation: Increasing Accountability and Financial Literacy, Efficiency in Resource Allocation and Budgeting, Procurement transparency and optimization, Sustainability and Asset Management.

The reviews state that among the best practices of financial management mentioned in the proposal are encouraging stakeholder engagement, making sure that all stakeholders take part in the budgeting process, and forging connections with outside partners. It enables the implementation of efficient finance management systems in education. Therefore, educational organizations should push for regular monitoring and evaluation of all financial programs. It is advised that future researchers look at financial management procedures in more detail in order to establish accountability, transparency, and reliable financial controls. Regular financial analyses, precise record-keeping, budgeting, risk management, and ongoing review of financial performance are all included in this. To ensure efficient and responsible resource management, it is also imperative to encourage stakeholder engagement, put ethical standards into practice, invest in financial literacy programs, and train staff members involved in financial management.

• Abag, C. (2019). Financial Management Role of Public Secondary School Managers in The Three Cities of Batangas Province. Ascendens Asia Journal of Multidisciplinary Research Abstracts, 3(2M).
•  Ahn, E. J. & Kang, H. (2018). Introduction to Systematic Review and Meta-Analysis. Korean Journal of Anesthesiology, 103–112.
• Ajaegbo, A. N. (2020). Quality Management Imperatives For Improving The Service Delivery Of Academic Staff Of Colleges Of Education In Anambra State. National Journal Of Educational Leadership, 5(2).
• Ampongan, M. (2019). Financial Management Practices and Coping Strategies of Teachers in City Divisions of Bicol Region: Its Impact on Their Performance. Ascendens Asia Journal of Multidisciplinary Research Abstracts, 3(2M).
• Atieno, O. M. (2012). Internal control systems on financial accountability in national public secondary schools in Kenya. European Journal of Economic and Financial Research, 4(3).
• Ballada, L. G., & Ballada, J. M. (2012). The role of principals in ensuring school effectiveness and performance: Insights from literature. Journal of Educational Leadership and Policy Studies, 2(1), 1-12.
•  Brunet-Houdard, S. (2020)Dubnitskiy-Robin, S., Pradère, B., d’Arcier, B. F., Watt, S., Le Fol, T.,Bruyère, F., … & Switching to single-use flexible ureteroscopes for stones management: financial impact and solutions to reduce the cost over a 5-year period. Urology, 16, 43.
• Casingal, C., & Ancho, I. (2021). Financial Literacy Challenges: The Case of Filipino Public-School Teachers. Jurnal Aplikasi Manajemen, 19(4), 715-724.
• Chaka T 2019. School Governance: Issues in Education Policy Series. Braamfontein: Centre for Education Policy Development.
• Chaka, C., & Nkhobo, T. (2019). Online module login data as a proxy measure of studentengagement: the case of my Unisa, Moya MA, Flipgrid, and Gephi at an ODeL institution in South Africa. International Journal of Educational Technology in Higher Education, 16, 1-22.
•  Chandler, N. A., Bush, T., Coleman, M. (2019). Strategic Management in Education. Sage Journal, 463.
• Clarke, R. (2008). Systems and controls for preventing misappropriation of school finances. Journal of Educational Finance and Policy, 3(2), 45-58.
• Collantes, L. (2021). Unveiling the Problems of Student Teachers during Practice Teaching in Nueva Ecija, Region III, Philippines. Indonesian Research Journal in Education| IRJE|, 5(1), 45-62.
• Cuenca, L. (2019). Management of Fund Utilization Among Public Secondary Schools. Ascendens Asia Journal of Multidisciplinary Research Abstracts, 3(2F).
• Espinosa, F. M. (2017). FINANCIAL MANAGEMENT PRACTICES OF SCHOOL HEADS: TEACHERS’PERSPECTIVES. Skyline Business Journal, 13(1).
• Gitman, L. M., (2003). Principles of managerial finance. Pearson Higher Education AU.
• Lopus, J. S., Amidjono, D. S., & Grimes, P. W. (2019). Improving financial literacy of the poor and vulnerable in Indonesia: An empirical analysis. International Review of Economics Education, 32, 100168.
• Magak, E. O. (2013). Challenges Facing Head Teachers In Financial Management In Public Secondary Schools: A Case Of Kisumu East District Kenya (Doctoral dissertation, University of Nairobi,),3(1).100-102
• Moreno, R. C. (2019). Impact Of Financial Literacy On Level Of Stress Among Business Education Students. Luz Y Saber, 13(2), 1-1.
• Pagaduan, S. I. P. (2020). The Financial Literacy Of Baliuag University College Of Business Administration And Accounting Students: Its Impact On Financial Attitudes And Practices. Harvest, 16(1), 1-1.
• Phyliters, M., Mulwa, A. S., & Kyalo, D. N. (2018). Financial Management for Effective Schools: Bridging Theory and Practice through Competency Development among Secondary School Principals in Kitui County, Kenya”. International Journal of Education and Research, 6(11), 1-18. Retrieved on October 5, 2021 from https://bit.ly/3BuMnPZ
• Ramirez, M. E., & Amponin, M. L. (2019). Compliance of Public Elementary School on the Financial Management Role in the School-Based Management in Taal District, Division of Batangas. Ascendens Asia Journal of Multidisciplinary Research Abstracts, 3(2B).
•  Ranganathan, A., & Aggarwal S. (2022). An Investigation on Strategic Management Success Factors in an Education Complex. Science Direct, 447 – 454.
• Rimando, M. A. (2018). The Mediating Effect of Impulse Buying on the Relationship between Financial Management and Saving Behavior of DepEd Division Personnel in Region XI. Tin-aw, 2(1), 1-1.
• Rodriguez, A. C. (2018). Personal Financial Management Practices of Secondary Educators in the National Capital Region. Ascendens Asia Journal of Multidisciplinary Research Abstracts, 2(4).
• Sachitra, V., Wijesinghe, D., & Gunasena, W. (2019). Exploring undergraduates’ money-management life: insight from an emerging economy. Young Consumers.
• Salam, N., & Sedik-Salam, M. (2018). Best Practices on Financial Management: A Collaborative Academic Interventions in Cotabato City, Southern Philippines. JPAIR Multidisciplinary Research, 31(1), 139-153.
• Sampal, J. (2019). Financial Management Capabilities of the School Principals on the Allocated Maintenance and Other Operating Expenses (MOOE). Ascendens Asia Journal of Multidisciplinary Research Abstracts, 3(2).
• Signo, G. P., Marasigan, M. E. D., & Nibay, M. A. (2019). Financial Literacy, Personal Financial Management Practices and Retirement Readiness of the Teachers in Pedro A. Paterno National High School. Ascendens Asia Journal of Multidisciplinary Research Abstracts, 3(2).
• Snyder, H. (2019). Literature review as a research methodology: An overview and guidelines. Journal of business research, 104, 333-339.
• Styles, M. C. (2018). A Financial Epidemic: How Financial Literacy Affects College Students’ Financial Management Practices and the Debt Crisis in America Mikala Styles A Financial Epidemic: How Financial Literacy Affects College Students’ Financial Management Practices and the Debt Crisis in America. https://dc.etsu.edu/honors/444
• Sulaiman, N. A., Na’im Kamarudin, N., & Shahimi, S. (2018). Internal Audit Effectiveness in Insurance and Takaful Companies in Malaysia: A Study of Internal Auditors and Auditees’ Perceptions. Asian Journal of Business and Accounting, 1-30.
• Surendar, G., & Sarma, S. (2018). Financial literacy and financial planning among teachers of higher education-a study of critical factors of select variables. International Journal of Pure and Applied Mathematics, 118(18), 1627-1649.

Article Statistics

Track views and downloads to measure the impact and reach of your article.

PDF Downloads

Subscribe to Our Newsletter

Sign up for our newsletter, to get updates regarding the Call for Paper, Papers & Research.

Email Address * Subscribe

Track Your Paper

Enter the following details to get the information about your paper

Thank you for visiting nature.com. You are using a browser version with limited support for CSS. To obtain the best experience, we recommend you use a more up to date browser (or turn off compatibility mode in Internet Explorer). In the meantime, to ensure continued support, we are displaying the site without styles and JavaScript.

• View all journals
• My Account Login
• Explore content
• About the journal
• Publish with us
• Sign up for alerts
• Open access
• Published: 27 May 2024

Knowledge creates value: the role of financial literacy in entrepreneurial behavior

• Shulin Xu 1 &
• Kangqi Jiang 2  

Humanities and Social Sciences Communications volume  11 , Article number:  679 ( 2024 ) Cite this article

186 Accesses

Metrics details

Under the backdrop of economic globalization and the digital economy, entrepreneurial behavior has emerged not only as a focal point of management research but also as an urgent topic within the domain of family finance. This paper scrutinizes the ramifications of financial literacy on household entrepreneurial behavior utilizing data from China’s sample of the China Household Finance Survey spanning the years 2015 and 2017. Employing the ordered Probit model, we pursue our research objectives. Our findings suggest that financial literacy exerts immediate, persistent, and evolving positive effects on households’ engagement in entrepreneurial activities and their proclivity toward entrepreneurship. Through the mitigation of endogeneity in the regression model, the outcomes of the two-stage regression corroborate the primary regression results. An examination of heterogeneity unveils noteworthy disparities between urban and rural areas, as well as gender discrepancies, in how financial literacy influences household entrepreneurial behavior. Furthermore, this study validates three potential pathways—namely income, social network, and risk attitude channels—demonstrating that financial literacy significantly augments household income, expands social networks, and enhances risk attitudes. Moreover, through supplementary analysis, we ascertain that financial education amplifies the impact of financial literacy on entrepreneurial behavior. Our study contributes to the enrichment of human capital theory and modern entrepreneurship theory. It advocates for robust efforts by governments and financial institutions to widely disseminate financial knowledge and foster family entrepreneurship, thereby fostering the robust and stable operation of both the global financial market and the job market.

Similar content being viewed by others

The influence of psychological capital and social capital on women entrepreneurs’ intentions: the mediating role of attitude

Improving the entrepreneurial ability of rural migrant workers returning home in China: Study based on 5,675 questionnaires

Similar but yet different: individual cognitive traits and family contingencies as antecedents of intrapreneurship and self-employment

Introduction.

With the advancement of the global digital economy, entrepreneurship has increasingly emerged as a pivotal strategy for corporate strategic development (Cheng et al., 2024 ) and for the accumulation of residents’ wealth. Entrepreneurial behavior entails the optimization and integration of one’s own resources to generate substantial economic or social value. Individuals are expected to possess organizational and managerial abilities and to deliberate upon and determine the operational strategies for services, technologies, and equipment to engage in rational entrepreneurial endeavors (Levesque and Minniti, 2006 ). Entrepreneurial activities play a crucial role in fostering labor market prosperity, achieving social equity, enhancing the flow of social capital, and sustaining the healthy and stable functioning of the social economy (Hombert et al., 2020 ; Schmitz, 1989 ). They also hold promise for alleviating the current economic crisis through the exploitation of renewable energy sources (Abou Houran, 2023 ) and enhancing firm productivity (Tao et al., 2023 ). According to human capital theory, as posited by Becker ( 2009 ), human capital encompasses the cumulative knowledge, skills, cultural sophistication, and health status of an individual. Financial literacy, as a form of scarce human capital, constitutes a significant driver of entrepreneurial decision-making and motivation. On the one hand, the migration of individuals possessing high financial literacy fosters the transfer of theoretical knowledge and technical expertise, while the symbiotic interaction of knowledge, skills, and capabilities nurtures a reservoir of knowledge and entrepreneurial dynamism. On the other hand, individuals with elevated financial literacy are more likely to enhance their awareness and identification of opportunities within an imbalanced market, thereby bolstering their self-awareness and catalyzing independent innovation and entrepreneurship. Moreover, in line with modern entrepreneurship theory, Alvarez and Busenitz ( 2001 ) contend that entrepreneurial opportunities are endogenous. Entrepreneurs equipped with the requisite skills and knowledge pertaining to entrepreneurship are better positioned to identify and exploit opportunities. Additionally, they possess extensive and efficacious social networks, enabling them to access valuable information and resources conducive to enhancing entrepreneurial performance. Against the backdrop of economic globalization and the digital economy, governments worldwide are actively encouraging entrepreneurial engagement. They have enacted financial support policies and preferential tax measures to enhance the domestic entrepreneurial ecosystem and to galvanize individuals’ entrepreneurial potential. For instance, the Chinese government introduced numerous policies aimed at fostering entrepreneurial endeavors in 2018. Similarly, the U.S. government is proactively implementing several initiatives to foster an environment conducive to the flourishing of small and medium-sized enterprises, striving to institute permanent tax relief measures for small businesses.

However, the enhancement of the entrepreneurial environment can engender a proliferation of entrepreneurial opportunities (Segaf, 2023 ). Yet, the ability of entrepreneurs to seize such opportunities for proactive entrepreneurship remains constrained by numerous factors, including the development of the digital economy (Sussan and Acs, 2017 ; Firmansyah et al., 2023 ; Zhao and Weng, 2024 ), social networks (Karlan, 2007 ; Qi and Chun, 2017 ), human capital (Dawson et al., 2014 ), risk attitudes (Osman, 2014 ), government regulations (Black and Strahan, 2002 ), institutional environments (Burtch et al., 2018 ; Lan et al., 2018 ), institutional changes within universities (Eesley et al., 2016 ), financial constraints (Hurst and Lusardi, 2004 ; Asongu et al., 2020 ), policy interventions (Sharipov and Zaynuidinova, 2020 ), cognitive abilities (Haynie et al., 2012 ), personal beliefs regarding character and opportunity (Pidduck et al., 2023 ), household background, income levels, and trust (Kwon and Arenius, 2010 ). Entrepreneurial activities entail the identification and exploitation of entrepreneurial opportunities and the utilization of entrepreneurial resources. These endeavors invariably entail considerations of business management, financial matters, and professional concerns. Entrepreneurs must possess adequate financial literacy to ensure the rationality of entrepreneurial decision-making, the judicious allocation of entrepreneurial resources, the mitigation of venture capital risks, and the effective operation of enterprises. Drawing from a review of international experiences, scholars predominantly emphasize macroeconomic environments (Arin et al., 2015 ), institutional frameworks, cultural disparities (Liang et al., 2018 ), credit constraints (Ma et al., 2018 ), liquidity constraints (Beck et al., 2018 ), as well as micro-level factors such as social networks (Yueh, 2009 ), and information availability (Companys and McMullen, 2007 ), when examining the determinants of entrepreneurial activities.

From a current static perspective, existing studies indicate a close association between financial literacy and a range of financial behaviors and economic outcomes. A wealth of evidence demonstrates that financial literacy fosters household income growth (Behrman et al., 2012 ), facilitates the expansion of social networks (Kinnan and Townsend, 2012 ; Suresh, 2024 ), and enhances residents’ risk attitudes (Mishra, 2018 ), all of which can also impact entrepreneurial behavior. Thus, we posit that financial literacy may influence household entrepreneurial activities through three primary channels. Firstly, prior research has affirmed that higher levels of financial literacy correlate with enhanced information acquisition and processing abilities, leading to more informed decision-making (Forbes and Kara, 2010 ; Molina-García et al., 2023 ), fostering healthier and more rational investment philosophies and habits. These factors, in turn, contribute to improved investment returns and elevated household income levels. Household entrepreneurial activities necessitate sufficient financial support for use as entrepreneurial funds, and throughout the entrepreneurial process, a continuous stream of funds is required for operational and managerial purposes. Household wealth and income serve as the principal resources for family entrepreneurship, indispensable for entrepreneurial endeavors.

Secondly, studies by Korkmaz et al. ( 2021 ), Mishra ( 2018 ), and Mushafiq et al. ( 2023 ) reveal that heightened levels of financial literacy correlate with an increased likelihood of risk-taking or risk-neutrality and diminished tendencies toward risk aversion. This indicates that enhancing financial literacy significantly bolsters individuals’ risk appetites and reduces risk aversion. Entrepreneurship inherently entails risk-taking behavior and a willingness to embark on new ventures. Therefore, risk attitudes are intricately linked to entrepreneurial behavior. Research by Van Praag and Cramer ( 2001 ), as well as Long et al. ( 2023 ), spanning a 41-year study of 5800 Danish students, illustrates significant disparities in entrepreneurial willingness among individuals with varying risk preferences, with risk-conscious individuals exhibiting stronger inclinations towards entrepreneurship. Thirdly, Hong et al. ( 2004 ) and Chen et al. ( 2023 ) posit that financial literacy may proliferate through word-of-mouth or observational learning methods, thereby expanding social network structures. Social networks, as a distinct form of family capital alongside physical and human capital, facilitate risk-sharing (Munshi and Rosenzweig, 2016 ) and augment the likelihood of accessing formal or informal financing (Kinnan and Townsend, 2012 ). It is widely acknowledged that family entrepreneurial activities, to some extent, depend on the support offered by family members, relatives, and friends in terms of information, financing, and business operations and management (Munshi and Rosenzweig, 2016 ). Consequently, broader family social networks correlate with heightened probabilities of choosing entrepreneurship. Financial literacy can effectively mitigate information asymmetry in financial markets by enhancing family social networks, reducing monitoring costs and risky borrowing, and addressing adverse selection and moral hazard issues, thereby alleviating financing constraints and fostering family entrepreneurial activities.

The aforementioned analysis offers insights into the impact of financial literacy on household entrepreneurial activities. Nevertheless, a pivotal inquiry remains: can financial literacy effectively bolster the likelihood of family entrepreneurial choices and entrepreneurial motivation in the long term, thereby dynamically enhancing family entrepreneurial behavior? Furthermore, the urban–rural dichotomy and gender disparities in financial literacy prevalent in numerous countries may introduce variations in the current, long-term, and dynamic effects of financial literacy on residents’ entrepreneurial behavior. This prompts us to explore the existence of such disparities and whether the mechanisms underlying these differences are mediated through income, social networks, and risk attitudes. To address these gaps in the literature and elucidate the raised questions, we propose to establish a robust empirical framework. This framework will enable us to examine how financial literacy influences local households’ entrepreneurial behavior. Figure 1 illustrates our theoretical framework, delineating how financial literacy impacts household entrepreneurial activities through three primary channels.

Theoretical design and framework.

This study empirically examines the immediate, long-term, and evolving impacts of financial literacy on household entrepreneurial activities using data from the China Household Finance Survey (CHFS) for the years 2015 and 2017. We employ the ordered Probit model to fulfill our research objectives. The findings indicate that financial literacy exerts immediate, enduring, and evolving positive effects on households’ involvement in entrepreneurial activities and their propensity toward entrepreneurship. Accounting for the endogeneity of the regression model, the results from the two-stage regression reinforce the primary regression outcomes. Heterogeneity analysis reveals significant urban–rural disparities and gender differences in the influence of financial literacy on household entrepreneurial behavior. Additionally, this research substantiates three potential pathways: income, social network, and risk attitude channels. It demonstrates that financial literacy significantly enhances household income, expands social networks, and improves risk attitudes. Further analysis reveals that financial education amplifies the impact of financial literacy on entrepreneurial behavior.

Our contributions are multifaceted: Firstly, this study advances the understanding of entrepreneurial behavior in several dimensions. Previous research primarily focuses on factors influencing entrepreneurial behavior, such as social networks (Karlan, 2007 ), human capital (Dawson et al., 2014 ), risk attitudes (Osman, 2014 ), government regulation (Black and Strahan, 2002 ), institutional environments (Lu and Tao, 2010 ), financial constraints (Hurst and Lusardi, 2004 ), cognitive ability (Haynie et al., 2012 ), household background, and trust (Kwon and Arenius, 2010 ). Few studies delve into the influence of financial literacy on entrepreneurial behaviors. We address this gap and find that financial literacy positively impacts entrepreneurial behaviors. Secondly, we measure entrepreneurial behavior at the family level, including initiative entrepreneurship in the household finance domain, thereby expanding the existing literature beyond the use of new ventures as a measurement indicator. Most importantly, our study contributes to the enrichment of human capital theory and entrepreneurship theory within the realm of household finance, providing valuable insights into the theoretical understanding of the relationship between financial literacy and entrepreneurial behavior. Thirdly, in mechanism analysis, our study is the first to investigate the three channels through which financial literacy affects household entrepreneurial behavior using CHFS data from 2015 and 2017. Lastly, our study conducts heterogeneity analysis and presents evidence of significant urban-rural disparities and gender heterogeneity in the impact of financial literacy on household entrepreneurial behavior. Furthermore, this research enhances the comprehension of the relationship between financial literacy and financial behavior. While prior studies predominantly focus on the immediate effect of financial literacy on financial behavior, our study delves deeper. We not only explore the immediate impact of financial literacy on entrepreneurial behavior but also probe into its long-term and dynamic improvement characteristics, elucidating the internal mechanisms driving these effects. For policymakers, our research provides a theoretical foundation and empirical validation to formulate entrepreneurship policies. By comprehensively understanding how financial literacy influences household entrepreneurial behavior and acknowledging the heterogeneous effects across urban–rural divides and gender disparities, governments can tailor policies to effectively support and promote entrepreneurship, thereby fostering economic growth and development. Based on the conclusions of this study, governments can fully consider residents’ financial literacy and enhance various influencing channels while encouraging innovation and entrepreneurship, thereby facilitating wealth accumulation, enhancing family welfare, and elevating the national level of innovation and entrepreneurship in entrepreneurial activities. For businesses, our research underscores the pivotal role of financial literacy in entrepreneurial activities, constituting an indispensable aspect of “entrepreneurship.” In the actual operation and management processes of enterprises, managers should prioritize the cultivation of financial literacy, as it can aid in cost reduction and the expansion of social networks, thereby realizing the healthy and stable operation of enterprises.

In the rest of this paper, the section “Literature review” reviews the relevant literature. Section “Methodology” outlines the empirical model and introduces the variables and datasets. Section “Empirical results” describes and discusses the empirical results. Section “Heterogeneity analysis” reports a heterogeneous analysis in geography, gender and income level. The section “Potential mechanism analysis” and “Further analysis: the role of financial education” discusses three channels and analyses. Section “Conclusion” concludes and policy implications.

Literature review

Factors affecting financial literacy.

The financial literacy level of respondents is primarily influenced by both micro and macro environments. Concerning microelements, empirical evidence provided by Lusardi and Mitchell ( 2014 ) suggests that men tend to exhibit higher financial literacy levels than women, largely due to women’s perceived lack of self-confidence. Notably, only elderly women demonstrate high levels of self-assurance, alongside robust investment motivation and financial management interest (Bucher‐Koenen et al., 2017 ). Furthermore, Van Rooij et al. ( 2011 ) contend that age and financial literacy follow a hump-shaped distribution pattern, indicating that young individuals under 15 and seniors over 60 typically exhibit the lowest levels of financial literacy, while the middle-aged group tends to have the highest level. The accumulation of social experience serves to enhance the financial literacy level of the middle-aged demographic (Fong et al., 2021 ; Gamble et al., 2015 ). Moreover, Lusardi et al. ( 2012 ) found a positive correlation between the number of years of education and financial literacy, implying that higher levels of education contribute to the advancement of financial literacy.

The influence of macro-elements on financial literacy permeates various facets, shaping the financial knowledge and skills of young individuals through diverse formal and informal channels such as families, schools, communities, and workplaces (Grohmann et al., 2015 ). Lusardi et al. ( 2010 ) elucidated a direct correlation between the financial literacy of young individuals and the educational level and financial behavior of their parents. Moreover, Lachance ( 2014 ) uncovered that the educational level of neighbors also impacts children’s financial literacy. Danes and Haberman ( 2007 ) observed that while short-term financial literacy education and training exert some effect, direct parental education remains a more potent influencer of children’s financial literacy. Furthermore, parents’ active involvement in financial education and training programs contributes significantly to shaping children’s financial literacy. However, the literature presents mixed findings regarding the efficacy of financial education initiatives. Mandell ( 2008 ) found no enduring effects of financial education in high school on personal financial behavior, whereas Fernandes et al. ( 2014 ) suggested that financial literacy education has a limited impact, with its effectiveness waning over time. Conversely, Bruhn et al. ( 2013 ) and Lührmann et al. ( 2015 ) argued that financial education substantially enhances high school students' financial literacy. Moreover, Song ( 2020 ) conducted a field experiment in China, demonstrating that short-term financial education projects can effectively elevate financial literacy levels, thereby improving financial behavior among individuals with low financial literacy. Regarding social security mechanisms, extant literature indicates that improvements in social security significantly correlate with enhancements in residents’ financial literacy (Lusardi and Mitchell, 2011 ). Additionally, the social milieu plays a pivotal role, with countries experiencing high inflation rates and communities characterized by a high level of financial literacy, transparent banking policies, and frequent interactions with financially literate groups positively influencing individuals’ financial literacy levels (Lachance, 2014 ; Lusardi and Mitchell, 2011 ).

With the rapid proliferation of digital technology in the economic sphere, digitization has emerged as a ubiquitous topic of discussion among scholars (Chen and Jiang, 2024 ; Koskelainen et al., 2023 ; Jiang et al., 2024 ). The digitization of conventional financial industries and the entry of internet companies have catalyzed the growth of the digital finance sector (Jiang et al., 2022 ). Pertinent literature delves into the relationship between the advancement of digital finance and financial literacy (Prete, 2022 ; Yang et al., 2023 ). For instance, Yang et al. ( 2023 ), utilizing data from the China Household Finance Survey, found that financial literacy significantly fosters individuals’ engagement in digital finance, with this effect displaying notable heterogeneity. Drawing from cross-national data, Prete ( 2022 ) observed that the utilization of digital payment tools and platforms correlates with elevated levels of financial literacy. Koskelainen et al. ( 2023 ) endeavored to explore how varied aspects of digitization, encompassing digital financial behaviors, digital interventions, and financial technology, influence individuals’ financial literacy. Furthermore, they propose methodologies for constructing a metric of digital financial literacy.

Entrepreneurial behavior

Existing research concentrates on the determinants of entrepreneurial behavior, encompassing both macroelements and microelements. Macroelements comprise the economic environment, institutional framework, cultural disparities, credit and liquidity constraints, social networks, and information environment.

Economic development stimulates market demand for entrepreneurs and fosters entrepreneurial activities (Arin et al., 2015 ; AlOmari, 2024 ). Zhao and Weng ( 2024 ) observed that the advancement of the digital economy enhances urban innovation activities. Utilizing cross-cultural entrepreneurial cognition models, Lim et al. ( 2010 ) validated the impact of institutions on entrepreneurial activities. A nation’s formal institutions can dictate its level of economic freedom, influencing households’ entrepreneurial motivations and the types of entrepreneurial ventures pursued (McMullen et al., 2008 ; Kshetri, 2023 ). Asoni and Sanandaji ( 2014 ) demonstrated that proportional taxes do not significantly affect entrepreneurial activities, whereas progressive taxes notably boost entrepreneurship. Dong et al. ( 2022 ) revealed that local leadership turnover may serve as a barrier to entrepreneurship. Additionally, the environment for protecting private property rights is intertwined with entrepreneurial activities (Levine and Rubinstein, 2017 ; Hou et al., 2023 ). The deregulation of bank branches has intensified competition within the banking sector while greatly enhancing credit accessibility, thereby promoting household entrepreneurship (Black and Strahan, 2002 ). In terms of cultural disparities, Mora ( 2013 ) posited that such differences lead to variations in entrepreneurial ideas and behavioral tendencies, with entrepreneurial activities more likely to flourish in a cultural milieu characterized by low uncertainty, fostering independent thinking, valuing wealth, and eschewing conformity (Lee et al., 2020 ). Freytag and Thurik ( 2007 ), drawing upon data from European and American countries, concluded that culture exerts a positive and significant impact on entrepreneurial preferences but does not significantly influence actual entrepreneurial activities.

The primary challenge encountered by entrepreneurial endeavors is liquidity constraints (Banerjee and Newman, 1993 ; Ma et al., 2018 ). Banerjee and Newman ( 1993 ) contend that financial support in the form of low-interest loans, financing guarantees, and credit assurances alleviates financing constraints during entrepreneurial pursuits, thereby mitigating business risks. Information asymmetry may curtail the availability of credit services for entrepreneurs and impede household entrepreneurial activities (Stiglitz and Weiss, 1981 ). Wang ( 2012 ) constructed models for employment and housing decision-making, revealing that liquidity constraints influence the interaction between personal wealth and entrepreneurial decision-making. The emergence of digital finance and the Internet has mitigated information asymmetry, moral hazard, and adverse selection, safeguarding entrepreneurs’ financial security (Beck et al., 2018 ; Qing et al., 2024 ). Furthermore, it has expanded product sales channels and enhanced the accessibility of cost-effective financial services (Berger and Udell, 2002 ; He and Maire, 2023 ), thereby fostering household entrepreneurial behavior. However, Hurst and Lusardi ( 2004 ) posit that credit constraints are not the primary impediment to entrepreneurial activities, as entrepreneurs can mitigate such constraints through savings and informal credit channels.

Social networks play a pivotal role in entrepreneurial endeavors. A robust social network can furnish material capital, technical expertise, vital information, and emotional support for household entrepreneurship (Yueh, 2009 ; Yates et al., 2023 ). Social networks effectively alleviate information asymmetry, mitigate adverse selection and moral hazard (Karlan, 2007 ; Kerr and Mandorff, 2023 ), and serve as an implicit guarantee mechanism, reducing the likelihood of default on non-governmental loans (Karlan, 2007 ). Consequently, social networks diminish liquidity constraints, thereby promoting households’ inclination towards entrepreneurship. According to entrepreneurial vigilance theory, information asymmetry gives rise to entrepreneurial opportunities, underscoring the significance of information disparities in entrepreneurial activities (Companys and McMullen, 2007 ; Wang et al., 2024 ). Trust fosters the flow of information among different social groups, cultivating social capital, and residents with greater entrepreneurial opportunities are more inclined towards entrepreneurship (Kwon and Arenius, 2010 ).

Microelements encompass human capital and psychological characteristics. Regarding human capital, Berkowitz and DeJong ( 2005 ) contend that individuals with higher education levels can swiftly and accurately identify potential entrepreneurial opportunities and efficiently allocate internal and external resources. However, compared to those with average education levels, individuals with higher education face higher opportunity costs, leading to lower entrepreneurial motivation. Additionally, some studies find no significant effect of education on entrepreneurial activities (Van der Sluis et al., 2008 ) or observe a non-linear U-shaped relationship (Poschke, 2013 ). Mankiw and Weinzierl ( 2011 ) ascertain that a lack of personal ability significantly dampens households’ entrepreneurial spirit. Entrepreneurial behavior necessitates the acquisition, organization, and analysis of information, with cognitive ability reflecting an individual’s capacity to process, store, and extract information. Thus, Haynie et al. ( 2012 ) posit that cognitive ability may influence an individual’s entrepreneurial activities. Other studies explore the relationship between an individual’s age (Caliendo et al., 2014 ), gender (Koellinger et al., 2013 ), marital status, political outlook (Yueh, 2009 ), entrepreneurial training (Blattman et al., 2014 ), work experience (Lazer, 2005 ), type of employment (Djankov et al., 2005 ), health status (Rey-Martí et al., 2016 ), management elements (Cheng et al., 2022 ), education (Cui and Bell, 2022 ; Adeel et al., 2023 ; Lin et al., 2023 ), entrepreneurial identity (Stevenson et al., 2024 ), and entrepreneurial behavior.

Concerning household wealth, the majority of studies posit a positive correlation between household wealth and entrepreneurial behavior (Evans and Jovanovic, 1989 ). Some studies also explore the impact of accidental exogenous events and policy reforms leading to increased wealth on household entrepreneurial behavior (Blattman et al., 2014 ). In terms of psychological characteristics, extant literature primarily discusses the effect of risk attitude on entrepreneurial behavior. Most studies demonstrate that individual risk preference significantly influences entrepreneurial behavior, with risk-tolerant individuals exhibiting a greater propensity for entrepreneurial activities (Osman, 2014 ). However, Hu ( 2014 ) suggests that risk-neutral individuals are more inclined to engage in active entrepreneurial activities, whereas risk-averse and risk-tolerant individuals are more predisposed to becoming waged workers.

Existing research predominantly concentrates on the determinants of financial literacy and entrepreneurial behavior. Few studies explore the impact of financial literacy on entrepreneurial behavior. This study aims to address this gap.

Methodology

Refer to prior studies (Dong et al., 2022 ; Yang et al., 2023 ; Zhao and Li, 2021 ; Xu et al., 2023 ; Graña-Alvarez et al., 2024 ), this study uses the \({{\rm {Probit}}}\) model to study the current and long-term effects of financial literacy on household entrepreneurial behavior. The basic regression equation is as follows:

When we study the current effect, \({{{\rm {Entrepre}}}}_{i}\) refers to entrepreneurship behavior of household \(i\) in 2015. \({{{\rm {Literacy}}}}_{i}\) represents financial literacy of household i in 2015. \({X}_{i}^{{\prime} }\) refers to control variables in 2015, including \({{\rm {gender}}}\) , \({{\rm {Age}}}\) , \({{{\rm {Age}}}}^{2}\) , \({{\rm {Health}}}\) , \({{\rm {Marriage}}}\) , \({{\rm {Education}}}\) , \({{\rm {RL}}}\) , \({{\rm {RN}}}\) , \({{\rm {RA}}}\) , \({\rm {{CPC}}}\) , \({{\rm {FS}}}\) , \({{\rm {Assets}}}\) , \({{\rm {NC}}}\) , \({{\rm {NE}}}\) , \({{\rm {House}}}\) , and \({{\rm {NU}}}\) . 1 \({\mu }_{i}\) is the error term. In the above regression model, we control the province-fixed effect. The current effect is a static effect based on cross-sectional data, which mainly examines whether the current financial literacy can affect the current household entrepreneurial behavior. Most existing studies only use cross-sectional data to consider current effects.

When we study the long-term effect, \({{{\rm {Entrepre}}}}_{i}\) refers to entrepreneurship behavior of household \(i\) in 2017. \({{{\rm {Literacy}}}}_{i}\) represents the financial literacy of household \(i\) in 2015. Other designs remain unchanged. The long-term effect is mainly to test whether financial literacy can have an effect on lagging entrepreneurial behavior.

Furthermore, we use the \({{\rm {ordered}}\; {\rm {Probit}}}\) model to study the dynamic effect of financial literacy on household entrepreneurial behavior as follows:

Where \({{{\rm {Entrepre}}}}_{i}^{* }\) represents the changes in entrepreneurial behavior household \(i\) during 2015–2017, it is an ordered variable, denoted by −1, 0, and 1, respectively. \({{{\rm {Literacy}}}}_{i}\) represents financial literacy of household \(i\) in 2015. \({\varphi }_{i}\) refers to control variables in 2015. The expression of \(F\) \(\left(\cdot \right)\) function in the model ( 2 ) is as follows:

Where \({{{\rm {Entrepre}}}}_{i}^{* {\prime\prime} }\) is the latent variable of \({{{\rm {Entrepre}}}}_{i}^{* }\) . \({\varepsilon }_{1} < {\varepsilon }_{2} < L < {\varepsilon }_{3}\) all are tangent points. \({{{\rm {Entrepre}}}}_{i}^{* {\prime\prime} }\) has to satisfy:

Financial literacy

Following prior studies (Lusardi and Mitchell, 2014 ; Zhao and Li, 2021 ), Table 1 reports the descriptive statistics of the answers to questions related to financial literacy as survey respondents’ financial literacy level denoted as \({{{\rm {Literacy}}}1}_{i}\) . It shows that 28.67%, 16.39%, and 51.94% of the households answered the questions of interest rate calculation, inflation understanding, and venture capital correctly, respectively, indicating that most Chinese households do not understand and calculate inflation. A total of 48.17% of the households incorrectly answered the questions about interest rate calculation, implying that Chinese households lack the ability to calculate the interest rate.

Factor analysis is also often used to measure financial literacy. Following Lusardi and Mitchell ( 2014 ), we believe that the level of financial literacy represented by wrong answers and failure to answer differs. Considering this, we construct two dummy variables for each question. Therefore, we obtain six dummy variables, including dum1–dum6. The KMO test results in Table 2 show that factor analysis is reasonable. Finally, this study selects the factors with an eigenvalue greater than one as respondents’ financial literacy denoted as \({{\rm {Literacy}}}2\) .

Referring to Zhao and Li ( 2021 ), the explained variable in this study is household entrepreneurial behavior, including \({{\rm {Enterpre}}}1\) and \({{\rm {Entrepre}}}2\) , \(\,{{Entrepre}1}^{* }\) , and \(\,{{{\rm {Entrepre}}}2}^{* }\) . \({{\rm {Entrepre}}}1\) measures whether the interviewed household participates in entrepreneurial behavior and is equal to one when the household is engaged in a self-employed business operation. \({{\rm {Entrepre}}}2\) measures whether the entrepreneurial behavior of entrepreneurial families is active and is equal to 1 if the reason for the household’s participation in entrepreneurship is “want to be the boss”, “earn more”, and “want to be more flexibles and free”. \({{{\rm {Entrepre}}}1}^{* }\) represents the changes in entrepreneurial behavior of households during 2015–2017. \({{{\rm {Entrepre}}}2}^{* }\) represents the changes in initiative entrepreneurship of households during 2015–2017. Its construction method is shown in Table 3 .

The survey data collected by the China Household Finance Survey in 2015 and 2017 are used in this paper. This database collects a large amount of information about Chinese residents through scientific surveys and statistical methods, and it is widely used in scientific research. The CHFS has designed relevant questions about the financial literacy of the interviewees. Samples with missing values are excluded. Table 4 provides the descriptive statistics of the variables. It is worth mentioning that CHFS has been widely adopted (Zhao and Li, 2021 ; Yang et al., 2023 ).

Empirical results

Financial literacy and entrepreneurial behavior.

Columns (1)–(4) in Table 5 report the estimated results of the current effect. The estimated coefficients of financial literacy in columns (1) and (2) are significant at the level of 5% and 1%, respectively, indicating that the improvement of financial literacy can significantly improve the possibility of household entrepreneurship. This result shows that financial literacy is an important determinant of household entrepreneurship decision-making, and it is the driver of household entrepreneurial activities. We found an interesting conclusion from the estimation results of the control variables. From the results in columns (1)–(4), we find that the education level of the head of the household is significantly negatively correlated with the household entrepreneurial behavior. However, the impact of our financial literacy on household entrepreneurial behavior was positive. This result seems to go against our intuition. We think that because financial literacy education is different from general education. Ordinary education mainly emphasizes the popularization and popularization of knowledge, while financial literacy education should be a kind of targeted specialized education. This conclusion supports the conclusion of the majority of the current literature.

The regression model may suffer endogenous problems. Endogeneity mainly comes from two aspects. First, a reverse causal relationship exists between financial literacy and household entrepreneurial choice. The accumulation of entrepreneurial experience may also lead to improved financial literacy. Second, the respondents may guess the answers to financial questions, leading to inaccurate measurement of financial literacy. Following Bucher-Koenen and Lusardi ( 2011 ) and Jappelli and Padula ( 2013 ), we selected the highest educational level among parents as an instrumental variable. We chose this instrumental variable for two main reasons. First, the family is the first place where individuals acquire and learn knowledge after they are born. Generally speaking, the higher the education level of parents, the more emphasis they will put on the education of their children. Parents with a high level of education can better help their children develop study habits and guide their children to receive more and better education through precepts and deeds and subtle influences in the daily life of the family. This will allow them to know more about their computing power and knowledge of economics and finance and possibly have a higher level of financial literacy. Second, the educational level of parents is determined before their children start a business and is independent of the entrepreneurial decisions of their children’s families. This suggests that parents’ educational level is strictly exogenous relative to their children’s entrepreneurial decisions. Therefore, we think it is appropriate to use parental education level as an instrumental variable. The problem that cannot be ignored is that parents with higher education levels are more likely to provide more resources for their children to start a business through their relationship network. We address this issue by controlling the parental network in our model. The results show that both the correlation test and the exogenous test of the instrumental variable of parental education level have passed, which verifies the validity of the instrumental variable to a certain extent. The results in Columns (3) and (4) in Table 5 support our conclusion.

Columns (5)–(8) in Table 5 report the estimated results of the current effect of financial literacy on household initiative entrepreneurship ( \({{\rm {Entrepre}}}2\) ). The results in columns (5) and (6) of Table 5 show that the estimated coefficients of financial literacy are significant at the level of 10%, indicating that financial literacy can help raise the household’s motivation for entrepreneurship in the current period and promote the initiative in entrepreneurship. Columns (7) and (8) in Table 5 , The DWH test, first-stage estimated and instrumental variables show that financial literacy will help raise the household’s motivation for entrepreneurship in the current period and promote the initiative in entrepreneurship.

Table 6 reports the estimated results of the long-term effect of financial literacy on household entrepreneurial behavior. No matter what index is used to measure financial literacy, the estimated coefficient of financial literacy is statistically significantly positive, indicating that financial literacy is beneficial to increasing the probability of households participating in entrepreneurial activities and taking the initiative in entrepreneurship in the long term.

Table 7 reports the estimation results of the ordered \({{\rm {Probit}}}\) model to estimate the dynamic improvement effect of financial literacy on household entrepreneurial behavior. In Table 7 , columns (1) and (2) show that no matter what index is used to measure financial literacy, the estimated coefficient of financial literacy is statistically significantly positive. After controlling endogenous concerns, we can obtain consistent results in columns (3) and (4). Columns (5)–(8) in Table 7 , no matter what index is used to measure financial literacy, the estimated coefficient of financial literacy is statistically significantly positive. We find that the improvement of financial literacy level is helpful in promoting the development of household entrepreneurial decision-making and initiative in entrepreneurship.

The above empirical results suggest that improving financial literacy levels may significantly promote family participation in entrepreneurial activities and household initiative in entrepreneurship. This conclusion is consistent with the conclusion of Xu et al. ( 2023 ), indicating that financial literacy may have current, long-term, and dynamic effects on some financial behaviors. This effect has the characteristics of current, long-term, and dynamic improvement. This study provides a reasonable explanation for the findings that financial literacy adds to entrepreneurs’ understanding of business activities and market dynamics, enabling them to discover entrepreneurial opportunities better.

Robustness checks

We conduct the robustness checks by replacing the proxy index of financial literacy. We construct three dummy variables, namely, \({{\rm {Dum}}}1\) , \({{\rm {Dum}}}3\) , and \({{\rm {Dum}}}\) 5. We use these three dummy variables to replace the explanatory variable \({{\rm {Entrepre}}}1\) or \({{\rm {Entrepre}}}2\) in the model (1) and model (2). \({{\rm {Dum}}}1\) means the answers the interest rate calculation question correctly, \({{\rm {Dum}}}2\) means the answers the inflation question correctly, \({{\rm {Dum}}}3\) means the answers the inflation question correctly. Table 8 reports the corresponding estimated results. The estimated coefficients of \({{\rm {Dum}}}1\) and \({{\rm {Dum}}}3\) are not significant. However, no matter what index is used to measure financial literacy, the estimated coefficient of \({{\rm {Dum}}}5\) is statistically significantly positive, indicating that venture capital literacy can significantly improve household entrepreneurial activities and motivation to initiate entrepreneurship.

In addition, we use respondents’ attention to economic and financial information to measure it denoted as \({Attention}\) . We use \({attention}\) to replace the explanatory variable \({Literacy}1\) or \({Literacy}2\) in the model (1) and model (2). Table 9 results show that the estimated coefficient of \({Attention}\) is statistically significantly positive. It shows that attention to financial and economic information can significantly improve household entrepreneurial activity and motivation to initiate entrepreneurship, which also indicates that the influence of financial literacy is robust.

Heterogeneity analysis

Urban–rural differences.

Significant differences exist between urban and rural areas in China’s economic environment, and household entrepreneurship behavior may show varying tendencies in different environments. Therefore, the effect of financial literacy on household entrepreneurship may have urban–rural heterogeneity. Table 10 reports the estimated results. Combining the size of the explanatory variable coefficient and the test results of inter-group coefficient difference, we find that the effect of financial literacy on households’ participation in entrepreneurial activities is more pronounced for households in urban areas. However, the effect of financial literacy on the initiative in entrepreneurship is more pronounced for households in rural areas.

Regarding the findings, this study provides a reasonable explanation. Compared with rural areas, urban areas have higher economic and financial development. Highly skilled personnel are also more abundant in urban areas, which leads to more opportunities for entrepreneurship. Therefore, the relationship between financial literacy and the possibility of households’ participating in entrepreneurial activities is stronger for households in urban areas. The level of income and financial development in rural areas is low, and the degree of financing constraints on households is severe. Compared with urban households who have already participated in entrepreneurial activities, rural households who have already participated in entrepreneurial activities are more eager to quickly realize “being your own boss,” “earning more,” and “being flexible and free” through initiative in entrepreneurship.

Gender differences

Gender differences in financial literacy are common in many countries (Hung et al., 2009 ). Lusardi and Mitchell ( 2014 ) found that in the United States, 38.3% of men can correctly answer three financial questions, but only 22.5% of women can. Only in their old age can women have financial investment motivation and a strong interest in household financial management (Tran et al., 2019 ). Table 11 reports the estimated results. Combining the size of explanatory variable coefficient and the test results of inter group coefficient difference, we find that the effect of financial literacy on household participation in entrepreneurial activities is more pronounced in the male sample and the effect of financial literacy on the household initiative in entrepreneurship is more pronounced in the female sample.

This study provides a reasonable explanation for the findings. Compared with women, men tend to be more confident in their economic decision-making abilities and have a stronger interest in family financial management, hoping to realize self-worth through entrepreneurship. Therefore, financial literacy has a stronger effect on men’s participation in entrepreneurial activities. Compared with men who have made entrepreneurial choices, women are more eager to realize personal financial freedom in entrepreneurship. Therefore, financial literacy has a stronger effect on women’s initiative in entrepreneurship.

Potential mechanism analysis

Income channels.

On the one hand, the income gap or expansion of income levels has changed people’s relative status, intensified “relative exploitation” and social differentiation, and affected people’s “material craving” and jealousy, thereby helping to stimulate the enthusiasm of middle- and low-income groups to start a business (Mensah and Benedict, 2010 ). On the other hand, the most important thing at the beginning of entrepreneurship is the initial capital for family entrepreneurship, and the increase in family income provides initial capital for family entrepreneurship, thereby promoting family entrepreneurial activities (Evans and Jovanovic, 1989 ). To this end, this study explores whether financial literacy will affect household entrepreneurial activities through the channel of increasing household income and income level. This study estimates the following regression model to prove the income channel that financial literacy may increase household income and income rank:

where \({{{\rm {Income}}}}_{i}\) refers to the natural logarithm of the total household income. \(\,{{{\rm {Rank}}}}_{i}=1\) represents a high-income household. \({X1}_{i}\) and \({X2}_{i}\) represent control variables in 2015, including \({{\rm {gender}}}\) , \({{\rm {Age}}}\) , \({{{\rm {Age}}}}^{2}\) , \({{\rm {Health}}}\) , \({{\rm {Marriage}}}\) , \({{\rm {Education}}}\) , \({{\rm {RL}}}\) , \({{\rm {RN}}}\) , \({{\rm {RA}}}\) , \({{\rm {CPC}}}\) , \({{\rm {FS}}}\) , \({{\rm {Assets}}}\) , \({{\rm {NE}}}\) , \({{\rm {NC}}}\) , \({{\rm {House}}}\) , and \({{\rm {NU}}}\) . Other designs are consistent with the benchmark model ( 1 ). If \({\omega }_{1}\) and \({\omega }_{2}\) are significantly positive, then we can conclude that financial literacy may increase household income and income rank.

We use CHFS 2015 data to conduct empirical research to prove that financial literacy can increase household income and promote entrepreneurial activities. This study uses two indicators of total household income ( \({{\rm {Income}}}\) ) and income level ( \({{\rm {Rank}}}\) ) as household income variables. The total family income is a total indicator of income, and the income level is a relative indicator that reflects the relative level of family income. We divide the income level into two levels according to the total income of the sample. The top 50% of the total income level is defined as the high-income class, and the bottom 50% is defined as the low-income family. The endogenous problems found in the regression model are solved by the instrumental variable method. The estimation results are shown in Table 12 . It shows that the estimated coefficients for \({{\rm {Literacy}}}1\) and \({{\rm {Literacy}}}2\) are significantly positive, which indicates that income channels are possible. The regression model may suffer endogenous problems. Following Bucher-Koenen and Lusardi ( 2011 ) and Jappelli and Padula ( 2013 ), we select the highest educational level among parents as an instrumental variable. Columns (5)–(8) in Table 12 show that the estimated coefficients of financial literacy are significantly above 1%, which indicates that income channels are possible.

Social network channels

In China, the family social network is mainly based on blood and geography. One of the important means of communication and relationship between relatives and friends is to give gifts to one another during the Spring Festival and other holidays and weddings and funerals. We use CHFS 2015 data for empirical research and select the family’s cash and non-cash expenditures ( \({{\rm {Expenditure}}}\) ), income ( \({{\rm {Revenue}}}\) ), and total income and expenditure ( \({{\rm {Sum}}}\) ) during the Spring Festival and other holidays and weddings and funerals as the proxy variables for the social network. The endogenous problems found in the regression model are solved using the two-stage instrumental variable method. This study strives to prove the social network channel that financial literacy promotes families’ cash and non-cash expenditures, revenue, and total revenue and expenditure during holidays such as the Spring Festival and weddings and funerals. Our model is as following:

where \({{SN}}_{i}\) is \({{Expenditure}}_{i}\) , \({{revenue}}_{i}\) , or \({{Sum}}_{i}\) refer to the social network. \({{Expenditure}}_{i}\) represents the total cash and non-cash expenditures of the family during holidays such as the Spring Festival and weddings and funerals. \({{Revenue}}_{i}\) represents the total cash and non-cash revenue of the family. \({{Sum}}_{i}\) represents the total cash and non-cash expenditures and revenue of the family. \({X3}_{i}\) represents control variables in 2015, including \({gender}\) , \({Age}\) , \({{Age}}^{2}\) , \({Health}\) , \({Marriage}\) , \({Education}\) , \({RL}\) , \({RN}\) , \({RA}\) , \({CPC}\) , \({FS}\) , \({Assets}\) , \({NE}\) , \({NC}\) , \({House}\) , and \({NU}\) . Other designs are consistent with model (1). If \({\psi }_{1}\) is significantly positive, then we can conclude that financial literacy may expand social network.

The estimated results are shown in Table 13 . Following Bucher-Koenen and Lusardi ( 2011 ) and Jappelli and Padula ( 2013 ), we selected the highest educational level among parents as an instrumental variable. As can be seen from columns (1)–(6) in Panel A, \({Literacy}1\) and \({Literacy}2\) are both significantly positive at the 1% level. From columns (1)–(6) in Panel B, after controlling for endogenous factors, \({Literacy}1\) and \({Literacy}2\) are both statistically significantly positive at the 1% level. These results imply that social network channels are possible and reliable.

Risk attitude channels

We use CHFS 2015 data to conduct empirical research to prove that financial literacy can improve household risk attitudes and promote family entrepreneurial activities. We measure risk attitudes in multiple dimensions. First, we construct a comprehensive index of risk attitude. Risk preference ( \({{\rm {RL}}}\) ), risk neutrality ( \({{\rm {RN}}}\) ), and risk aversion ( \({{\rm {RA}}}\) ) are assigned values of 3, 2, and 1, respectively, to examine the effect of financial literacy on risk attitudes. Then, we divide risk attitudes into risk preference ( \({{\rm {RL}}}\) ), risk aversion ( \({{\rm {RA}}}\) ), and risk neutrality ( \({{\rm {RN}}}\) ) and generate dummy variables to examine the effect of financial literacy on these three types. Similarly, considering that there may be endogenous problems in the regression model, we use the instrumental variable method to solve the problem. This study strives to prove the risk attitude channel that financial literacy promotes risk attitude:

where \({{{\rm {Risk}}\_{\rm {attitude}}}}_{i}\) is \({{{\rm {RL}}}}_{i}\) , \({{{\rm {RN}}}}_{i,}\) or \({{{\rm {RA}}}}_{i}\) in model ( 8 ), and \({{{\rm {Risk}}}}_{i}\) is \({{\rm {Risk}}}\) in model ( 9 ). Risk preference ( \({{\rm {RL}}}\) ), risk aversion ( \({{\rm {RA}}}\) ), and risk neutrality ( \({{\rm {RN}}}\) ) are generated as dummy variables to examine the effect of financial literacy on the three types of risk attitudes. \({{{\rm {Risk}}}}_{i}\) is a comprehensive indicator of risk attitude. We assign the values of 3, 2, and 1 to respondents’ risk preference, risk neutrality, and risk aversion, respectively, and examine the effect of financial literacy on risk attitudes. \({X4}_{i}\) represents control variables in 2015, including \({{\rm {gender}}}\) , \({{\rm {Age}}}\) , \({{{\rm {Age}}}}^{2}\) , \({{\rm {Health}}}\) , \({{\rm {Marriage}}}\) , \({{\rm {Education}}}\) , \({{\rm {CPC}}}\) , \({{\rm {FS}}}\) , \({{\rm {Assets}}}\) , \({{\rm {NE}}}\) , \({{\rm {NC}}}\) , \({{\rm {House}}}\) , and \({{\rm {NU}}}\) . Other designs are consistent with the benchmark model ( 1 ). If \({\omega }_{3}\) and \({\sigma }_{1}\) are significantly positive, then we can conclude that financial literacy may improve risk attitude.

The estimation results are shown in Table 14 . Columns (1)–(8) in Panel A demonstrate that the marginal effect of financial literacy on risk appetite and risk neutrality is positive, while the marginal effect on risk aversion is significantly negative. This indicates that enhancing financial literacy has led to an increase in residents’ willingness to take risks and a reduction in their aversion to risk. Additionally, the positive marginal effect of financial literacy on risk attitudes further underscores its role in improving residents’ overall risk perception. Following Bucher-Koenen and Lusardi ( 2011 ) and Jappelli and Padula ( 2013 ), we selected the highest educational level among parents as an instrumental variable. The estimation results in columns (1)–(8) of Panel B indicate that after solving the endogenous problem, the estimated coefficients or marginal effect coefficients of \({{\rm {Literacy}}}1\) and \({{\rm {Literacy}}}2\) are significantly positive at the level of 5% and above. The above results confirm the rationality of the empirical evidence that financial literacy promotes family entrepreneurial behavior by improving residents’ risk attitudes.

Further analysis: the role of financial education

The aforementioned findings substantiate the significant impact of financial literacy on family entrepreneurial behavior, thereby underscoring the importance of delving deeper into strategies aimed at enhancing residents’ financial literacy within the context of family entrepreneurship. According to Lusardi and Mitchell ( 2011 ), implementing financial education programs emerges as the most effective means to bolster residents’ financial literacy. Can financial education truly serve as a catalyst for elevating residents’ financial literacy? Furthermore, can it effectively amplify the influence of financial literacy on residents’ entrepreneurial endeavors? Investigating the intricate interplay between financial literacy, financial education, and familial entrepreneurial conduct is paramount.

In initial exploration, it becomes imperative to scrutinize the correlation between financial education and the level of financial literacy. To operationalize financial education, a binary variable is constructed, wherein a value of 1 denotes participation in coursework related to economics or finance, while a value of 0 indicates otherwise. Subsequently, the variables Literacy1 or Literacy2 are introduced to replace the interpreted variable, and the variable Learn stands in place of the interpreted variable. The control variables adhere to the framework outlined in Model (1). The estimated outcomes are presented in Table 15 . Regardless of the method employed to measure financial literacy, the estimated coefficient of financial education ( Learn ) consistently demonstrates a statistically significant positive impact at the 1% significance level, suggesting that engagement in financial education initiatives can indeed enhance residents’ financial literacy levels. Additionally, three PSM methodologies are employed to scrutinize the influence of financial education on financial literacy. The estimated results, as detailed in Table 16 , consistently reveal positive and statistically significant ATT values, thereby affirming the robustness of the aforementioned findings. These robustness checks further underscore the foundational assertion, highlighting the pivotal role of financial education in enriching family financial literacy.

Moving forward, our investigation extends to assessing whether financial education can effectively augment the influence of financial literacy on family entrepreneurial behavior. To address this inquiry, we construct an interaction term, denoted as Literacy × Learn, which captures the combined impact of financial education and financial literacy. This interaction term is incorporated into the analysis. Table 17 presents the estimated results. Irrespective of the method employed to measure financial literacy, the estimated coefficient of Literacy × Learn consistently displays a statistically significant positive association. This signifies that financial education effectively amplifies the impact of financial literacy on family entrepreneurial behavior.

An intriguing discovery emerges from our analysis: the estimated marginal effect coefficient for the interaction terms of Literacy1 × Learn or Literacy2 × Learn is notably positive, surpassing the coefficient of financial literacy alone. This observation suggests a close relationship between the impact of financial literacy on entrepreneurial behavior and individuals’ exposure to financial education. Consequently, our study substantiates that financial education serves as a moderating variable in shaping the influence of financial literacy on residents’ entrepreneurial behavior, effectively augmenting its impact. In practical terms, nationwide financial education initiatives and inclusive activities led by the People’s Bank of China, in collaboration with other financial institutions, have yielded noteworthy results over time. However, the current lack of enthusiasm and initiative among residents toward learning may hinder their engagement with financial education programs. Yet, with the proliferation of financial education efforts, this apathy is expected to wane, paving the way for increased attention and participation in financial education and training endeavors.

Theoretical implications

Our study draws upon human capital theory and modern entrepreneurship theory to empirically analyze the present, long-term, and evolving effects of financial literacy on household entrepreneurial behaviors, utilizing data from the CHFS in 2015 and 2017. The findings reveal that financial literacy exerts immediate, persistent, and evolving positive effects on households’ engagement in entrepreneurial activities and their propensity towards entrepreneurship. Addressing the endogeneity of the regression model, the results from the two-stage regression analysis corroborate the primary regression findings. Heterogeneity analysis highlights significant disparities between urban and rural areas as well as gender differences in how financial literacy influences household entrepreneurial behavior. Moreover, this study validates three potential mechanisms: income, social network, and risk attitude channels. We observe that financial literacy significantly enhances household income, broadens social networks, and fosters improved risk attitudes. Furthermore, our analysis indicates that financial education reinforces the impact of financial literacy on entrepreneurial behavior. These research findings carry significant theoretical implications, enriching both human capital theory and modern entrepreneurship theory.

Practical implications

This research carries significant implications for policymakers and stakeholders alike. Firstly, governments should recognize the pivotal role of financial literacy and embark on comprehensive initiatives to promote it through various channels, including television programs, radio broadcasts, informational brochures, training sessions, and specialized lectures. Establishing a sustained mechanism for the dissemination of financial literacy is crucial for enhancing the financial acumen of our nation’s populace. Secondly, special emphasis should be placed on promoting financial literacy in rural areas and among women. Collaborative efforts with financial institutions can facilitate targeted and tailored financial education projects aimed at these demographics, thereby fostering inclusivity and empowerment. By addressing the disparities in financial literacy, governments can pave the way for more equitable access to financial resources and opportunities. Thirdly, governments should actively promote financial education activities, including entrepreneurship training programs. These initiatives can mitigate the inhibitory effects of low financial literacy on entrepreneurial pursuits and enhance the management capabilities of entrepreneurs. By equipping individuals with the necessary skills and knowledge, such programs contribute to the resilience and dynamism of China’s financial market and stimulate growth in the employment landscape. In conclusion, concerted efforts to promote financial literacy and education are essential for advancing economic prosperity, fostering entrepreneurship, and ensuring inclusive development. By prioritizing these initiatives, policymakers can lay the foundation for a more resilient and prosperous future for China’s economy and society.

Future research and limitations

While our study has yielded significant insights, there are several avenues that merit further exploration in future research endeavors. Firstly, the complex relationship between cultural diversity and entrepreneurial behavior warrants deeper investigation. Unfortunately, due to the lack of detailed data on cultural diversity at the market segment level, this aspect remains largely unexplored in our study. Future research could delve into this aspect to better understand how cultural factors influence entrepreneurial decisions. Secondly, our analysis is constrained by the utilization of cross-sectional data from 2015 and 2017. Access to longitudinal data covering a broader timeframe could provide more nuanced insights and facilitate stronger conclusions. Therefore, future studies could benefit from employing larger datasets and extended panel data to comprehensively analyze the dynamics of the relationship between financial literacy and entrepreneurial behavior over time. Thirdly, the simplicity of the questionnaire used in our study may limit the depth of understanding regarding residents’ entrepreneurial behavior. Future research could address this limitation by employing more sophisticated questionnaires developed through an interdisciplinary approach, incorporating insights from psychology and other relevant fields. This holistic approach may offer a more nuanced understanding of residents’ entrepreneurial behavior, thereby enhancing the validity and reliability of the findings.

Furthermore, with the advent of the digital age, integrating elements of digitization or digital technology into academic research has become imperative. In our future research endeavors, we aim to expand our focus in several key areas. Firstly, we will explore the determinants of digital entrepreneurial behavior, examining how digital technologies influence entrepreneurial decisions and strategies. Secondly, we will emphasize the importance of digital financial literacy in shaping entrepreneurial behavior, considering how individuals’ proficiency in digital financial tools and platforms impacts their entrepreneurial activities. Lastly, we will endeavor to leverage digital technology to enhance causal identification in empirical analysis, employing innovative methodologies to better understand the mechanisms underlying the relationship between financial literacy and entrepreneurial behavior in the digital era.

Data availability

The datasets generated during and/or analyzed during the current study are available in the Harvard Dataverse repository: https://doi.org/10.7910/DVN/NRZ1K1 .

Abou Houran M (2023) Renewable rush in Syria faces economic crisis. Financ Econ Lett 2(2):1–5

Google Scholar  

Adeel S, Daniel AD, Botelho A (2023) The effect of entrepreneurship education on the determinants of entrepreneurial behaviour among higher education students: a multi-group analysis. J Innov Knowl 8(1):100324

Article   Google Scholar  

AlOmari AM (2024) Game theory in entrepreneurship: a review of the literature. J Bus Socio-econ Dev 4(1):81–94

Alvarez SA, Busenitz LW (2001) The entrepreneurship of resource-based theory. J Manag 27(6):755–775

Arin KP, Huang VZ, Minniti M, Nandialath AM, Reich OF (2015) Revisiting the determinants of entrepreneurship: a Bayesian approach. J Manag 41(2):607–631

Asongu SA, Nnanna J, Acha-Anyi PN (2020) Finance, inequality and inclusive education in sub-Saharan Africa. Econ Anal Policy 67:162–177

Asoni A, Sanandaji T (2014) Taxation and the quality of entrepreneurship. J Econ 113(2):101–123

Banerjee AV, Newman AF (1993) Occupational choice and the process of development. J Political Econ 101(2):274–298

Beck T, Pamuk H, Ramrattan R, Uras BR (2018) Payment instruments, finance and development. J Dev Econ 133:162–186

Becker GS (2009) Human capital: a theoretical and empirical analysis, with special reference to education. University of Chicago Press

Behrman JR, Mitchell OS, Soo CK, Bravo D (2012) How financial literacy affects household wealth accumulation. Am Econ Rev 102(3):300–304

Article   PubMed   PubMed Central   Google Scholar  

Berger AN, Udell GF (2002) Small business credit availability and relationship lending: the importance of bank organisational structure. Econ J 112(477):F32–F53

Berkowitz D, DeJong DN (2005) Entrepreneurship and post‐socialist growth. Oxf Bull Econ Stat 67(1):25–46

Black SE, Strahan PE (2002) Entrepreneurship and bank credit availability. J Financ 57(6):2807–2833

Blattman C, Fiala N, Martinez S (2014) Generating skilled self-employment in developing countries: experimental evidence from Uganda. Q J Econ 129(2):697–752

Bruhn M, de Souza Leão L, Legovini A, Marchetti R, Zia B (2013) The impact of high school financial education: experimental evidence from Brazil. World Bank Policy Research Working Paper (6723)

Bucher-Koenen T, Lusardi A (2011) Financial literacy and retirement planning in Germany. J Pension- Econ Financ 10(4):565–584

Bucher‐Koenen T, Lusardi A, Alessie R, Van Rooij M (2017) How financially literate are women? An overview and new insights. J Consum Aff 51(2):255–283

Burtch G, Carnahan S, Greenwood BN (2018) Can you gig it? An empirical examination of the gig economy and entrepreneurial activity. Manag Sci 64(12):5497–5520

Caliendo M, Fossen F, Kritikos AS (2014) Personality characteristics and the decisions to become and stay self-employed. Small Bus Econ 42(4):787–814

Chen H, Dai Y, Guo D (2023) Financial literacy as a determinant of market participation: new evidence from China using IV-GMM. Int Rev Econ Financ 84:611–623

Chen Z, Jiang K (2024) Digitalization and corporate investment efficiency: evidence from China. J Int Financ Mark Inst Money 91:101915

Cheng S, Fan Q, Dagestani AA (2024) Opening the black box between strategic vision on digitalization and SMEs digital transformation: the mediating role of resource orchestration. Kybernetes 53(2):580–599

Cheng Y, Zhang J, Liu Y (2022) The impact of enterprise management elements on college students’ entrepreneurial behavior by complex adaptive system theory. Front Psychol 12:769481

Companys YE, McMullen JS (2007) Strategic entrepreneurs at work: the nature, discovery, and exploitation of entrepreneurial opportunities. Small Bus Econ 28(4):301–322

Cui J, Bell R (2022) Behavioural entrepreneurial mindset: how entrepreneurial education activity impacts entrepreneurial intention and behaviour. Int J Manag Educ 20(2):100639

Danes SM, Haberman H (2007) Teen financial knowledge, self-efficacy, and behavior: a gendered view. J Financ Couns Plan 18(2). Available at SSRN: https://ssrn.com/abstract=2228406

Dawson C, Henley A, Latreille P (2014) Individual motives for choosing self-employment in the UK: does region matter? Reg Stud 48(5):804–822

Djankov S, Miguel E, Qian Y, Roland G, Zhuravskaya E (2005) Who are Russia’s entrepreneurs? J Eur Econ Assoc 3(2-3):587–597

Dong Z, Wang X, Zhang T, Zhong Y (2022) The effects of local government leadership turnover on entrepreneurial behavior. China Econ Rev 71:101727

Evans DS, Jovanovic B (1989) An estimated model of entrepreneurial choice under liquidity constraints. J Political Econ 97(4):808–827

Eesley C, Li JB, Yang D (2016) Does institutional change in universities influence high-tech entrepreneurship? Evidence from China’s Project 985. Organ Sci 27(2):446–461

Firmansyah D, Wahdiniwaty R, Budiarti I (2023) Entrepreneurial performance model: a business perspective in the digital economy era. J Bisnis Manaj Dan Ekon 4(2):125–150

Fernandes D, Lynch Jr JG, Netemeyer RG (2014) Financial literacy, financial education, and downstream financial behaviors. Manag Sci 60(8):1861–1883

Fong JH, Koh BS, Mitchell OS, Rohwedder S (2021) Financial literacy and financial decision-making at older ages. Pac-Basin Financ J 65:101481

Forbes J, Kara SM (2010) Confidence mediates how investment knowledge influences investing self-efficacy. J Econ Psychol 31(3):435–443

Freytag A, Thurik R (2007) Entrepreneurship and its determinants in a cross-country setting. J Evol Econ 17(2):117–131

Gamble KJ, Boyle PA, Yu L, Bennett DA (2015) Aging and financial decision making. Manag Sci 61(11):2603–2610

Graña-Alvarez R, Lopez-Valeiras E, Gonzalez-Loureiro M, Coronado F (2024) Financial literacy in SMEs: a systematic literature review and a framework for further inquiry. J Small Bus Manag 62(1):331–380

Grohmann A, Kouwenberg R, Menkhoff L (2015) Childhood roots of financial literacy. J Econ Psychol 51:114–133

Haynie JM, Shepherd DA, Patzelt H (2012) Cognitive adaptability and an entrepreneurial task: The role of metacognitive ability and feedback. Entrep Theory Pract 36(2):237–365

He AX, Maire DL (2023) Household liquidity constraints and labor market outcomes: evidence from a Danish mortgage reform. J Financ 78(6):3251–3298

Hombert J, Schoar A, Sraer D, Thesmar D (2020) Can unemployment insurance spur entrepreneurial activity? Evidence from France. J Financ 75(3):1247–1285

Hong H, Kubik JD, Stein JC (2004) Social interaction and stock‐market participation. J Financ 59(1):137–163

Hou B, Zhang Y, Hong J, Shi X, Yang Y (2023) New knowledge and regional entrepreneurship: the role of intellectual property protection in China. Knowl Manag Res Pract 21(3):471–485

Hu F (2014) Risk attitudes and self‐employment in China. China World Econ 22(3):101–120

Article   ADS   Google Scholar  

Hung A, Parker AM, Yoong J (2009) Defining and measuring financial literacy. RAND Working Paper Series WR-708. https://ssrn.com/abstract=1498674

Hurst E, Lusardi A (2004) Liquidity constraints, household wealth, and entrepreneurship. J Political Econ 112(2):319–347

Jappelli T, Padula M (2013) Consumption growth, the interest rate, and financial literacy. Available at SSRN 2244086

Jiang K, Chen Z, Rughoo A, Zhou M (2022) Internet finance and corporate investment: evidence from China. J Int Financ Mark Inst Money 77:101535

Jiang K, Zhou M, Chen Z (2024) Digitalization and firms’ systematic risk in China. Int J Finance Econ https://doi.org/10.1002/ijfe.2931

Karlan DS (2007) Social connections and group banking. Econ J 117(517):F52–F84

Kerr WR, Mandorff M (2023) Social networks, ethnicity, and entrepreneurship. J Hum Resour 58(1):183–220

Kinnan C, Townsend R (2012) Kinship and financial networks, formal financial access, and risk reduction. Am Econ Rev 102(3):289–293

Koellinger P, Minniti M, Schade C (2013) Gender differences in entrepreneurial propensity. Oxf Bull Econ Stat 75(2):213–234

Korkmaz AG, Yin Z, Yue P, Zhou H (2021) Does financial literacy alleviate risk attitude and risk behavior inconsistency? Int Rev Econ Financ 74:293–310

Koskelainen T, Kalmi P, Scornavacca E, Vartiainen T (2023) Financial literacy in the digital age—a research agenda. J Consum Aff 57(1):507–528

Kshetri N (2023) The nature and sources of international variation in formal institutions related to initial coin offerings: preliminary findings and a research agenda. Financ Innov 9(1):1–38

Kwon S-W, Arenius P (2010) Nations of entrepreneurs: a social capital perspective. J Bus Ventur 25(3):315–330

Lachance ME (2014) Financial literacy and neighborhood effects. J Consum Aff 48(2):251–273

Lan S, Gao X, Wang Q, Zhang Y (2018) Public policy environment and entrepreneurial activities: evidence from China. China World Econ 26(3):88–108

Lazer D (2005) Regulatory capitalism as a networked order: The international system as an informational network. Ann Am Acad Political Soc Sci 598(1):52–66

Lee K, Jeon Y, Jo C (2020) Chinese economic policy uncertainty and US households’ portfolio decisions. Pac.-Basin Financ. J. 64:101452

Levesque M, Minniti M (2006) The effect of aging on entrepreneurial behavior. J Bus Ventur 21(2):177–194

Levine R, Rubinstein Y (2017) Smart and illicit: who becomes an entrepreneur and do they earn more? Q J Econ 132(2):963–1018

Liang J, Wang H, Lazear EP (2018) Demographics and entrepreneurship. J Political Econ 126(S1):S140–S196

Lim DS, Morse EA, Mitchell RK, Seawright KK (2010) Institutional environment and entrepreneurial cognitions: a comparative business systems perspective. Entrep Theory Pract. 34(3):491–516

Lin C, Pan Y, Yu Y, Feng L, Chen Z (2023) The influence mechanism of the relationship between entrepreneurial learning and entrepreneurial intention. Front Psychol 13:1023808

Long TQ, Morgan PJ, Yoshino N (2023) Financial literacy, behavioral traits, and ePayment adoption and usage in Japan. Financ Innov. 9(1):101

Lu J, Tao Z (2010) Determinants of entrepreneurial activities in China. J Bus Ventur 25(3):261–273

Lührmann M, Serra-Garcia M, Winter J (2015) Teaching teenagers in finance: does it work? J Bank Financ 54:160–174

Lusardi A, Mitchell OS (2011) Financial literacy and retirement planning in the United States. J Pension- Econ Financ 10(4):509–525

Lusardi A, Mitchell OS (2014) The economic importance of financial literacy: theory and evidence. J Econ Lit 52(1):5–44

Lusardi A, Mitchell OS, Curto V (2010) Financial literacy among the young. J Consum Aff 44(2):358–380

Lusardi A, Mitchell OS, Curto V (2012) Financial sophistication in the older population. NBER Working Paper, w17863. https://doi.org/10.3386/w17863

Ma YK, Xu B, Xu XF (2018) Real estate confidence index based on real estate news. Emerg Mark Financ Trade 54(4):747–760

Mandell L (2008). Financial education in high school. University of Chicago Press

Mankiw NG, Weinzierl M (2011) An exploration of optimal stabilization policy. Brookings Papers on Economic Activity, pp. 209–272

McMullen JS, Bagby DR, Palich LE (2008) Economic freedom and the motivation to engage in entrepreneurial action. Entrep Theory Pract. 32(5):875–895

Mensah SA, Benedict E (2010) Entrepreneurship training and poverty alleviation: empowering the poor in the Eastern Free State of South Africa. Afr J Econ Manag Stud 1(2):138–162

Mishra R (2018) Financial literacy, risk tolerance and stock market participation. Asian Econ Financ Rev 8(12):1457–1471

Molina-García A, Dieguez-Soto J, Galache-Laza MT, Campos-Valenzuela M (2023) Financial literacy in SMEs: a bibliometric analysis and a systematic literature review of an emerging research field. Rev Manag Sci 17(3):787–826

Mora C (2013) Cultures and organizations: Software of the mind intercultural cooperation and its importance for survival. J Media Res 6(1):65–66

Munshi K, Rosenzweig M (2016) Networks and misallocation: insurance, migration, and the rural-urban wage gap. Am Econ Rev 106(1):46–98

Mushafiq M, Khalid S, Sohail MK, Sehar T (2023) Exploring the relationship between investment choices, cognitive abilities risk attitudes and financial literacy. J Econ Adm Sci 39(4):1122–1136

Osman A (2014) Occupational choice under credit and information constraints. SSRN working paper. https://ssrn.com/abstract=2449251

Pidduck RJ, Clark DR, Lumpkin GT (2023) Entrepreneurial mindset: dispositional beliefs, opportunity beliefs, and entrepreneurial behavior. J Small Bus Manag 61(1):45–79

Poschke M (2013) Who becomes an entrepreneur? Labor market prospects and occupational choice. J Econ Dyn Control 37(3):693–710

Article   MathSciNet   Google Scholar  

Prete AL (2022) Digital and financial literacy as determinants of digital payments and personal finance. Econ Lett 213:110378

Qi L, Chun Z (2017) An analysis of the transmission mechanism from social network to individual entrepreneurial intentions. Manag Rev 29(4):59–71

Qing L, Li P, Mehmood U (2024) Uncovering the potential impacts of financial inclusion and human development on ecological sustainability in the presence of natural resources and government stability: evidence from G-20 nations. Resour Policy 88:104446

Rey-Martí A, Ribeiro-Soriano D, Palacios-Marqués D (2016) A bibliometric analysis of social entrepreneurship. J Bus Res 69(5):1651–1655

Schmitz Jr JA (1989) Imitation, entrepreneurship, and long-run growth. J Political Econ 97(3):721–739

Segaf S (2023) Exploring perceptions and elements of entrepreneurial behavior in pesantren: understanding fundamental concepts of Entrepreneurial Behavior. Al-Tanzim 7(3):962–972

Sharipov KA, Zaynuidinova UD (2020) Investment policy of automobile transport entrepreneurs. Am J Econ Bus Manag 3(1):70–76

Song CC (2020) Financial illiteracy and pension contributions: a field experiment on compound interest in China. Rev Financ Stud 33(2):916–949

Stevenson R, Guarana CL, Lee J, Conder SL, Arvate P, Bonani C (2024) Entrepreneurial identity and entrepreneurial action: a within‐person field study. Pers Psychol 77(1):197–224

Stiglitz JE, Weiss A (1981) Credit rationing in markets with imperfect information. Am Econ Rev 71(3):393–410

Suresh G (2024) Impact of financial literacy and behavioural biases on investment decision-making. FIIB Bus Rev 13(1):72–86

Sussan F, Acs ZJ (2017) The digital entrepreneurial ecosystem. Small Bus Econ 49:55–73

Tao M, Goh LT, Zheng Y, Le W (2023) Do China’s anti-corruption efforts improve corporate productivity? A difference-in-difference exploration of Chinese listed enterprises. Socio-Econ Plan Sci 87:101594

Tran VT, Nguyen TT, Tran NT (2019) Gender difference in access to local finance and firm performance: evidence from a panel survey in Vietnam. Econ Anal Policy 63:150–164

Van der Sluis J, Van Praag M, Vijverberg W (2008) Education and entrepreneurship selection and performance: a review of the empirical literature. J Econ Surv 22(5):795–841

Van Praag CM, Cramer JS (2001) The roots of entrepreneurship and labour demand: individual ability and low risk aversion. Economica 68(269):45–62

Van Rooij M, Lusardi A, Alessie R (2011) Financial literacy and stock market participation. J Financ Econ 101(2):449–472

Wang S-Y (2012) Credit constraints, job mobility, and entrepreneurship: evidence from a property reform in China. Rev Econ Stat 94(2):532–551

Wang J, Hu Y, Xiong J (2024) The internet use, social networks, and entrepreneurship: evidence from China. Technol Anal Strateg Manag 36(1):122–136

Xu S, Yang Z, Tong Z, Li Y (2023) Knowledge changes fate: can financial literacy advance poverty reduction in rural households? Singap Econ Rev 68(04):1147–1182

Yang J, Wu Y, Huang B (2023) Digital finance and financial literacy: evidence from Chinese households. J Bank Financ 156:107005

Yates VA, Vardaman JM, Chrisman JJ (2023) Social network research in the family business literature: a review and integration. Small Bus Econ 60(4):1323–1345

Yueh L (2009) China’s entrepreneurs. World Dev 37(4):778–786

Zhao J, Li T (2021) Social capital, financial literacy, and rural household entrepreneurship: a mediating effect analysis. Front Psychol 12:724605

Zhao X, Weng Z (2024) Digital dividend or divide: the digital economy and urban entrepreneurial activity. Socio-Econ Plan Sci 93:101857

Download references

Acknowledgements

We thank the support provided by the STU Scientific Research Initiation Grant [Grant No. STF24004T] and the National Natural Science Foundation of China [Grant No. 72203047].

Author information

Authors and affiliations.

School of Cultural Tourism and Geography, Guangdong University of Finance & Economics, 510320, Guangzhou, China

Business School, Shantou University, 515063, Shantou, China

Kangqi Jiang

You can also search for this author in PubMed   Google Scholar

Contributions

Conceptualization: SX and KJ; methodology: SX and KJ; resources: KJ; data curation: KJ; data collection and data analysis: SX and KJ; writing—original draft preparation: SX and KJ; writing—review and editing: SX and KJ; supervision: SX; project administration: KJ; funding acquisition: KJ. All authors have read and agreed to the published version of the manuscript.

Corresponding author

Correspondence to Kangqi Jiang .

Ethics declarations

Competing interests.

The authors declare no competing interests.

Ethical approval

This article does not contain any studies with human participants or animals performed by any of the authors. The data used in this paper is based on secondary data, which is available in the public domain for research purposes.

Informed consent

This article does not contain any studies with human participants performed by any of the authors.

Additional information

Publisher’s note Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Open Access This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/ .

Reprints and permissions

About this article

Cite this article.

Xu, S., Jiang, K. Knowledge creates value: the role of financial literacy in entrepreneurial behavior. Humanit Soc Sci Commun 11 , 679 (2024). https://doi.org/10.1057/s41599-024-03201-3

Download citation

Received : 29 December 2023

Accepted : 14 May 2024

Published : 27 May 2024

DOI : https://doi.org/10.1057/s41599-024-03201-3

Share this article

Anyone you share the following link with will be able to read this content:

Sorry, a shareable link is not currently available for this article.

Provided by the Springer Nature SharedIt content-sharing initiative

Quick links

• Explore articles by subject
• Guide to authors
• Editorial policies

CSR in times of crisis: a systematic literature review

• Published: 27 May 2024

Cite this article

• Dejan Glavas   ORCID: orcid.org/0000-0002-3168-2222 1 &
• Giovanni Visentin 2  

12 Accesses

1 Altmetric

Explore all metrics

This study assesses the strategic value of corporate social responsibility (CSR) investments and their impact on corporate resilience during financial crises. We examine three main hypotheses—“Doing well by doing good,” “Delegated philanthropy,” and “Insider-initiated philanthropy”—to understand what motivates companies to participate in CSR activities in times of economic turmoil. Using a systematic literature review of peer-reviewed journal articles within social sciences, extracted from Scopus and Web of Science, we adhered to Preferred Reporting Items for Systematic Reviews and Meta-Analyses guidelines to screen 1022 studies, ultimately yielding a final sample of 33 key high-quality studies. Our analysis reveals that a significant number of studies support the “Doing well by doing good” hypothesis, which suggests that CSR investments not only sustain financial performance but also serve as a crucial resilience mechanism in tumultuous economic times. Our findings reveal that investment in CSR enables firms to build social capital that pays off during financial crises by fostering trust between the firm and its stakeholders.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Price includes VAT (Russian Federation)

Instant access to the full article PDF.

Rent this article via DeepDyve

Institutional subscriptions

Similar content being viewed by others

Did Corporate Social Responsibility Vaccinate Corporations Against COVID-19?

Meta-analyses on Corporate Social Responsibility (CSR): a literature review

The effects of heterogeneous CSR on corporate stock performance: evidence from COVID-19 pandemic in China

Data availability.

The datasets supporting the conclusions of this article are included within the article in Tables 1 , 2 , 3 . Restrictions apply to the availability of the raw data from the 1022 studies initially extracted from Scopus and Web of Science databases. Access to these raw datasets can be granted by the authors upon a reasonable request, subject to obtaining permission from Scopus and Web of Science.

The software is based on the Python language, it is used for machine learning applications and is downloadable here: https://orangedatamining.com/ .

Aerts W, Cormier D (2009) Media legitimacy and corporate environmental communication. Account Organ Soc 34:1–27. https://doi.org/10.1016/j.aos.2008.02.005

Article   Google Scholar  

Ahmed Haji A (2013) Corporate social responsibility disclosures over time: evidence from Malaysia. Manag Audit J 28:647–676. https://doi.org/10.1108/MAJ-07-2012-0729

Albitar K, Al-Shaer H, Elmarzouky M (2021) Do assurance and assurance providers enhance COVID-related disclosures in CSR reports? An examination in the UK context. Int J Account Inf Manag 29(3):410–428. https://doi.org/10.1108/ijaim-01-2021-0020

Albuquerque R, Koskinen Y, Yang S, Zhang C (2020) Resiliency of environmental and social stocks: an analysis of the exogenous COVID-19 market crash. Rev Corp Financ Stud 9:593–621. https://doi.org/10.1093/rcfs/cfaa011

Al-Dah B, Dah M, Jizi M (2018) Is CSR reporting always favorable? Manag Decis 56(7):1506–1525. https://doi.org/10.1108/MD-05-2017-0540

Ali W, Bekiros S, Hussain N et al (2023) Determinants and consequences of corporate social responsibility disclosure: a survey of extant literature. J Econ Surv. https://doi.org/10.1111/joes.12556

Altaf N (2021) Two decades of big data in finance: systematic literature review and future research agenda. In: Saleem TJ, Chishti MA (eds) Big data analytics for internet of things, 1st edn. Wiley, pp 351–365

Chapter   Google Scholar  

Ashraf Z, Afshan G, Sahibzada UF (2021) Unpacking strategic corporate social responsibility in the time of crisis: a critical review. JGR. https://doi.org/10.1108/JGR-03-2021-0030

Attig N, El Ghoul S, Guedhami O, Suh J (2013) Corporate social responsibility and credit ratings. J Bus Ethics 117:679–694. https://doi.org/10.1007/s10551-013-1714-2

Bae K-H, Ghoul SE, Gong Z, Guedhami O (2021) Does CSR matter in times of crisis? Evidence from the COVID-19 pandemic. J Corp Financ 67:101876. https://doi.org/10.1016/j.jcorpfin.2020.101876

Bannier CE, Bofinger Y, Rock B (2023) Doing safe by doing good: non-financial reporting and the risk effects of corporate social responsibility. Eur Account Rev 32:903–933. https://doi.org/10.1080/09638180.2022.2042349

Bansal P, Jiang GF, Jung JC (2015) Managing responsibly in tough economic times: strategic and tactical CSR during the 2008–2009 global recession. Long Range Plan 48:69–79. https://doi.org/10.1016/j.lrp.2014.07.002

Barauskaite G, Streimikiene D (2021) Corporate social responsibility and financial performance of companies: the puzzle of concepts, definitions and assessment methods. Corp Soc Responsib Environ Manag 28:278–287. https://doi.org/10.1002/csr.2048

Barnea A, Rubin A (2010) Corporate social responsibility as a conflict between shareholders. J Bus Ethics 97:71–86. https://doi.org/10.1007/s10551-010-0496-z

Bénabou R, Tirole J (2010) Individual and corporate social responsibility. Economica 77:1–19. https://doi.org/10.1111/j.1468-0335.2009.00843.x

Berkman H, Li M, Lu H (2021) Trust and the value of CSR during the global financial crisis. Account Financ 61(3):4955–4965. https://doi.org/10.1111/acfi.12721

Block J, Wagner M (2013) The effect of family ownership on different dimensions of corporate social responsibility : evidence from large US firms. Bus Strategy Environ 23(7):475–492. https://doi.org/10.1002/bse.1798

Broadstock DC, Chan K, Cheng LTW, Wang X (2021) The role of ESG performance during times of financial crisis: evidence from COVID-19 in China. Financ Res Lett 38:101716. https://doi.org/10.1016/j.frl.2020.101716

Buchanan B, Cao CX, Chen C (2018) Corporate social responsibility, firm value, and influential institutional ownership. J Corp Financ 52:73–95. https://doi.org/10.1016/j.jcorpfin.2018.07.004

Cao Z, Rees W (2020) Do employee-friendly firms invest more efficiently? Evidence from labor investment efficiency. J Corp Financ 65:101744. https://doi.org/10.1016/j.jcorpfin.2020.101744

Cespa G, Cestone G (2007) Corporate social responsibility and managerial entrenchment. Econ Manag Strategy 16:741–771. https://doi.org/10.1111/j.1530-9134.2007.00156.x

Chakuu S, Masi D, Godsell J (2019) Exploring the relationship between mechanisms, actors and instruments in supply chain finance: a systematic literature review. Int J Prod Econ 216:35–53. https://doi.org/10.1016/j.ijpe.2019.04.013

Chaudhry SM, Saeed A, Ahmed R (2021) Carbon neutrality: the role of banks in optimal environmental management strategies. J Environ Manag 299:113545. https://doi.org/10.1016/j.jenvman.2021.113545

Chintrakarn P, Jiraporn P, Treepongkaruna S (2021) How do independent directors view corporate social responsibility (CSR) during a stressful time? Evidence from the financial crisis. Int Rev Econ Financ 71:143–160. https://doi.org/10.1016/j.iref.2020.08.007

Daugaard D (2020) Emerging new themes in environmental, social and governance investing: a systematic literature review. Account Financ 60:1501–1530. https://doi.org/10.1111/acfi.12479

Dedrick J, Gurbaxani V, Kraemer KL (2003) Information technology and economic performance: a critical review of the empirical evidence. ACM Comput Surv 35:1–28. https://doi.org/10.1145/641865.641866

Deegan C, Rankin M (1997) The materiality of environmental information to users of annual reports. Account Audit Account J 10:562–583. https://doi.org/10.1108/09513579710367485

del Rio M, Infante J, Gil-Alana LA (2021) Gender Diversity Index. Measuring persistence. Res Int Bus Financ 58:101474. https://doi.org/10.1016/j.ribaf.2021.101474

Delle Foglie A, Panetta IC (2020) Islamic stock market versus conventional: Are islamic investing a ‘Safe Haven’ for investors? A systematic literature review. Pac Basin Financ J 64:101435. https://doi.org/10.1016/j.pacfin.2020.101435

Diemont D, Moore K, Soppe A (2016) The downside of being responsible: corporate social responsibility and tail risk. J Bus Ethics 137:213–229. https://doi.org/10.1007/s10551-015-2549-9

El Ghoul S, Guedhami O, Kwok CCY, Mishra DR (2011) Does corporate social responsibility affect the cost of capital? J Bank Financ 35:2388–2406. https://doi.org/10.1016/j.jbankfin.2011.02.007

Evans A, Tzavara D (2012) Corporate social responsibility strategies in the light of the financial crisis: the case of Milan-based global companies. EJIM 6:154. https://doi.org/10.1504/EJIM.2012.045795

Fassin Y, Gosselin D (2011) The collapse of a european bank in the financial crisis: an analysis from stakeholder and ethical perspectives. J Bus Ethics 102:169–191. https://doi.org/10.1007/s10551-011-0812-2

Flammer C, Ioannou I (2021) Strategic management during the financial crisis: how firms adjust their strategic investments in response to credit market disruptions. Strateg Manag J 42:1275–1298. https://doi.org/10.1002/smj.3265

Friede G, Busch T, Bassen A (2015) ESG and financial performance: aggregated evidence from more than 2000 empirical studies. J Sustain Financ Invest 5:210–233. https://doi.org/10.1080/20430795.2015.1118917

Gillan SL, Koch A, Starks LT (2021) Firms and social responsibility: a review of ESG and CSR research in corporate finance. J Corp Financ 66:101889. https://doi.org/10.1016/j.jcorpfin.2021.101889

Glavas D, Bancel F (2023) Does state ownership impact green bond issuance ? Int Evid Financ 44(1):62–113. https://doi.org/10.3917/fina.pr.020

Godfrey PC, Merrill CB, Hansen JM (2009) The relationship between corporate social responsibility and shareholder value: an empirical test of the risk management hypothesis. Strateg Manag J 30:425–445. https://doi.org/10.1002/smj.750

Gray R, Kouhy R, Lavers S (1995) Corporate social and environmental reporting: a review of theliterature and a longitudinal study of UK disclosure. Account Audit Account J 8:47–77. https://doi.org/10.1108/09513579510146996

Greenland S, Robins JM (1985) Confounding and misclassification. Am J Epidemiol 122:495–506. https://doi.org/10.1093/oxfordjournals.aje.a114131

Grewal R, Tansuhaj P (2001) Building organizational capabilities for managing economic crisis: the role of market orientation and strategic flexibility. J Mark 65:67–80. https://doi.org/10.1509/jmkg.65.2.67.18259

Habermann F, Fischer FB (2023) Corporate social performance and the likelihood of bankruptcy: evidence from a period of economic upswing. J Bus Ethics 182(1):243–259. https://doi.org/10.1007/s10551-021-04956-4

Hannah ST, Sayari N, Harris FHB, Cain CL (2021) The direct and moderating effects of endogenous corporate social responsibility on firm valuation: theoretical and empirical evidence from the global financial crisis. J Manag Stud 58(2):421–456. https://doi.org/10.1111/joms.12586

Havlinova A, Kukacka J (2023) Corporate social responsibility and stock prices after the financial crisis: the role of strategic CSR activities. J Bus Ethics 182:223–242. https://doi.org/10.1007/s10551-021-04935-9

Hughes A (2012) Corporate ethical trading in an economic downturn: recessionary pressures and refracted responsibilities. J Econ Geogr 12:33–54. https://doi.org/10.1093/jeg/lbr004

Hyun S, Kim JM, Han J, Anderson M (2022) Female executive leadership and corporate social responsibility. Account Financ 62:3475–3511. https://doi.org/10.1111/acfi.12894

Jahmane A, Gaies B (2020) Corporate social responsibility, financial instability and corporate financial performance: linear, non-linear and spillover effects—the case of the CAC 40 companies. Financ Res Lett 34:101483. https://doi.org/10.1016/j.frl.2020.101483

Jensen MC, Meckling WH (1976) Theory of the firm: managerial behavior, agency costs and ownership structure. J Financ Econ 3:305–360. https://doi.org/10.1016/0304-405X(76)90026-X

Jiao Y (2010) Stakeholder welfare and firm value. J Bank Financ 34:2549–2561. https://doi.org/10.1016/j.jbankfin.2010.04.013

Lins KV, Servaes H, Tamayo A (2017) Social capital, trust, and firm performance: the value of corporate social responsibility during the financial crisis. J Financ 72:1785–1824. https://doi.org/10.1111/jofi.12505

Magrizos S, Apospori E, Carrigan M, Jones R (2021) Is CSR the panacea for SMEs? A study of socially responsible SMEs during economic crisis. Eur Manag J 39(2):291–303. https://doi.org/10.1016/j.emj.2020.06.002

Malik M (2015) Value-enhancing capabilities of CSR: a brief review of contemporary literature. J Bus Ethics 127:419–438. https://doi.org/10.1007/s10551-014-2051-9

Margolis JD, Elfenbein HA, Walsh JP (2009) Does it pay to be good...and does it matter? A meta-analysis of the relationship between corporate social and financial performance. SSRN J. https://doi.org/10.2139/ssrn.1866371

Marie Lauesen L (2013) CSR in the aftermath of the financial crisis. Soc Responsib J 9:641–663. https://doi.org/10.1108/SRJ-11-2012-0140

Masulis RW, Reza SW (2015) Agency problems of corporate philanthropy. Rev Financ Stud 28:592–636. https://doi.org/10.1093/rfs/hhu082

Mathes T, Walgenbach M, Antoine S-L et al (2014) Methods for systematic reviews of health economic evaluations: a systematic review, comparison, and synthesis of method literature. Med Decis Mak 34:826–840. https://doi.org/10.1177/0272989X14526470

Matos P (2020) ESG and responsible institutional investing around the world: a critical review. SSRN J. https://doi.org/10.2139/ssrn.3668998

Metaxas T, Tsavdaridou M (2013) CSR in metallurgy sector in Greece: a content analysis. Resour Policy 38:295–309. https://doi.org/10.1016/j.resourpol.2013.03.010

Mongeon P, Paul-Hus A (2016) The journal coverage of Web of Science and Scopus: a comparative analysis. Scientometrics 106:213–228. https://doi.org/10.1007/s11192-015-1765-5

Nakai M, Yamaguchi K, Takeuchi K (2016) Can SRI funds better resist global financial crisis? Evidence from Japan. Int Rev Financ Anal 48:12–20. https://doi.org/10.1016/j.irfa.2016.09.002

Omura A, Roca E, Nakai M (2021) Does responsible investing pay during economic downturns: evidence from the COVID-19 pandemic. Finance Res Lett 42:101914. https://doi.org/10.1016/j.frl.2020.101914

Orlitzky M, Schmidt FL, Rynes SL (2003) Corporate social and financial performance: a meta-analysis. Organ Stud 24:403–441. https://doi.org/10.1177/0170840603024003910

Ossenblok TLB, Verleysen FT, Engels TCE (2014) Coauthorship of journal articles and book chapters in the social sciences and humanities (2000–2010). J Asso Info Sci Technol 65:882–897. https://doi.org/10.1002/asi.23015

Ouzzani M, Hammady H, Fedorowicz Z, Elmagarmid A (2016) Rayyan—a web and mobile app for systematic reviews. Syst Rev 5:210. https://doi.org/10.1186/s13643-016-0384-4

Paul J, Lim WM, O’Cass A et al (2021) Scientific procedures and rationales for systematic literature reviews (SPAR-4-SLR). Int J Consum Stud. https://doi.org/10.1111/ijcs.12695

Petitjean M (2019) Eco-friendly policies and financial performance: was the financial crisis a game changer for large US companies? Energy Econ 80:502–511. https://doi.org/10.1016/j.eneco.2019.01.028

Raza A, Ilyas MI, Rauf R, Qamar R (2012) Relationship between corporate social responsibility (CSR) and corporate financial performance (CFP): literature review approach. Elixir Financ Manag 46:8404–8409

Google Scholar  

Roehrich JK, Lewis MA, George G (2014) Are public–private partnerships a healthy option? A systematic literature review. Soc Sci Med 113:110–119. https://doi.org/10.1016/j.socscimed.2014.03.037

Sajko M, Boone C, Buyl T (2021) CEO greed, corporate social responsibility, and organizational resilience to systemic shocks. J Manag 47(4):957–992. https://doi.org/10.1177/0149206320902528

Sakunasingha B, Jiraporn P, Uyar A (2018) Which CSR activities are more consequential? Evidence from the great recession. Financ Res Lett 27:161–168. https://doi.org/10.1016/j.frl.2018.02.003

Shamseer L, Moher D, Clarke M et al (2015) Preferred reporting items for systematic review and meta-analysis protocols (PRISMA-P) 2015: elaboration and explanation. BMJ 349:g7647–g7647. https://doi.org/10.1136/bmj.g7647

Singh A (2020) COVID-19 and safer investment bets. Financ Res Lett 36:101729. https://doi.org/10.1016/j.frl.2020.101729

Tsai H-J, Wu Y (2022) Changes in corporate social responsibility and stock performance. J Bus Ethics 178:735–755. https://doi.org/10.1007/s10551-021-04772-w

Van Beurden P, Gössling T (2008) The worth of values—a literature review on the relation between corporate social and financial performance. J Bus Ethics 82:407–424. https://doi.org/10.1007/s10551-008-9894-x

Velte P (2022) Meta-analyses on Corporate Social Responsibility (CSR): a literature review. Manag Rev Q 72:627–675. https://doi.org/10.1007/s11301-021-00211-2

Xu X, Chen X, Jia F et al (2018) Supply chain finance: a systematic literature review and bibliometric analysis. Int J Prod Econ 204:160–173. https://doi.org/10.1016/j.ijpe.2018.08.003

Yu S, Lee N (2016) Financial crisis, politically connected CEOs, and the performance of state-owned enterprises: evidence from Korea. Emerg Mark Financ Trade 52:2087–2099. https://doi.org/10.1080/1540496X.2016.1186445

Zhang L, Shan YG, Chang M (2021) Can CSR disclosure protect firm reputation during financial restatements? J Bus Ethics 173(1):157–184. https://doi.org/10.1007/s10551-020-04527-z

Download references

Acknowledgements

Our deepest gratitude is extended to everyone who has contributed to this research in various capacities. We would like to acknowledge Ms. Astrid Denimal, our research assistant for this work. Authors would like to thank the EU*Asia Institute for their support. We also wish to express our appreciation to Gilles Grolleau, Anna Dimitrova, and Alice Crepin for their extensive comments and valuable insights.

Authors do not have any funding to declare for this work.

Author information

Authors and affiliations.

AI for Sustainability Institute, ESSCA School of Management, 55 Quai Alphonse Le Gallo, 92513, Boulogne-Billancourt, France

Dejan Glavas

INCAE Business School, 2P3C+468 Campus Walter Kissling Gam, La Garita, Provincia de Alajuela, Costa Rica

Giovanni Visentin

You can also search for this author in PubMed   Google Scholar

Contributions

All authors contributed to the study conception and design. All authors read and approved the final manuscript.

Corresponding author

Correspondence to Dejan Glavas .

Ethics declarations

Conflict of interest.

The authors certify that they have no affiliations with or involvement in any organization or entity with any financial interest, or non-financial interest in the subject matter or materials discussed in this manuscript.

Additional information

Publisher's note.

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Supplementary Information

Below is the link to the electronic supplementary material.

Supplementary file1 (PDF 119 KB)

Supplementary file2 (ows 469 kb), supplementary file3 (csv 20 kb), supplementary file4 (csv 44 kb), rights and permissions.

Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.

Reprints and permissions

About this article

Glavas, D., Visentin, G. CSR in times of crisis: a systematic literature review. Manag Rev Q (2024). https://doi.org/10.1007/s11301-024-00445-w

Download citation

Received : 04 September 2023

Accepted : 16 May 2024

Published : 27 May 2024

DOI : https://doi.org/10.1007/s11301-024-00445-w

Share this article

Anyone you share the following link with will be able to read this content:

Sorry, a shareable link is not currently available for this article.

Provided by the Springer Nature SharedIt content-sharing initiative

• Corporate social responsibility
• Economic crises
• Systematic review

JEL Classification

• Find a journal
• Publish with us
• Track your research