THE MODERATING ROLE OF FINANCIAL LITERACY (FINLIT) ON THE INFLUENCE OF BEHAVIORAL FINANCE ON BUSINESS DECISIONS FOR IKM BATIK IN EAST JAVA

10.2478/bjlp-2022-002082

Abstract

Purpose: This study aims to examine and analyze financial literacy (finlit) variables as a moderating relationship between mental accounting, overconfidence, and risk attitudes towards the business decisions of IKM (small and medium industry) batik owners in East Java. Theoretical framework: Finlit has a positive influence on the growth of IKM, which is supported by IKM managers in understanding finlit and financial concepts including debt management, interest rates and bookkeeping (Lusimbo & Muturi, 2016). Design/methodology/approach: The research sample used is the owner of IKM handmade batik throughout East Java has been registered with the Ministry of Industry of the Republic of Indonesia in 2017, which is as many as 31 IKM handmade batik. The analysis technique used is MRA. Findings: The results shown from this study that there is a relationship between mental accounting, overconfidence, risk attitudes that affect decision making with the moderating variable, namely financial literacy. This proves that good financial literacy is very important for IKM batik owners in East Java to be wise in the decision-making process. Research, Practical & Social implications: The implication is this study shows that finlit does not only have a role as a moderating variable on business decisions, but financial literacy is able to shape the behavior of IKM batik owners in East Java in the decision-making process so as to increase profitability. Originality/value: The novelty of this research is the object under study is the owner of the batik tulis IKM in East Java and is included in the behavioral finance micro research, meaning that it only examines individual behavior based on their characteristics.