The Mediating Effect of Financial Inclusion on the Relationship between Financial Literacy and Capital Structure Decisions: A Study of Rural Small Enterprises in West Sumatra Indonesia
Abstract
The main purpose of this study was to examine the mediating role of financial inclusion in the relationship between financial inclusion and capital structure decisions in small industries in rural areas of West Sumatera. The population of this study was small embroidery industries in Pariaman, with a total sample of 143 small embroidery enterprises selected using the purposive sampling method. This study adopted and employed Sobel and Kenny & Baron tests to examine the mediating effect of financial inclusion in the relationship between financial literacy and capital structure. Research findings revealed that financial inclusion was a significant mediator in the relationship between financial literacy and capital structure decision as regards small embroidery enterprises. Financial literacy did not have a direct effect on capital structure decision, whilst financial inclusion acts as full mediation in my research. Moreover, financial inclusion increased the relationship between financial literacy and capital structure by 74.2%. Thus, these findings indicate that financial literacy possibly cannot improve the capital structure of embroidery businesses in rural areas of West Sumatera without financial inclusion.