Determinants Of Financial Management Practices Among SMEs in Ethiopia
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Small and Medium Enterprises (SMEs) play a vital role in Ethiopia’s economic transformation, yet their sustainability continues to be constrained by weaknesses in financial management practices (FMP). This study examined the determinants of FMP among 368 SMEs in Addis Ababa, Adama, and Jimma, focusing on strategic orientation, human capital, business characteristics, financial literacy, access to finance, technology adoption, external environment, and owner/manager demographics. Guided by the Resource‑Based View and Contingency Theory, a quantitative cross-sectional design and Multiple Linear Regression analysis were employed to identify the strongest predictors of financial management quality. Results reveal that internal organizational capabilities, particularly human capital (β = 0.2855, p= 0.000), financial literacy (β = 0.2699, p =0.000), business characteristics (β = 0.1256, p < 0.000), and strategic orientation (β = 0.1546, p < 0.000), are the most influential determinants of FMP. Access to finance (β = 0.1414, p < 0.000) and the external environment (β = 0.3873, p < 0.000) also exert significant positive effects, highlighting the role of financial resources and institutional conditions in strengthening financial behavior. In contrast, technology adoption and key demographic factors such as gender and business age show no significant influence. Notably, education level exhibits a small but significant negative effect, suggesting that formal schooling does not necessarily translate into stronger financial routines without practical financial training. Overall, the findings indicate that the effectiveness of financial management in SMEs depends less on demographic characteristics and more on firm-level capabilities, structured systems, strategic readiness, and an enabling external environment. Enhancing financial management practice therefore requires integrated interventions that strengthen financial literacy, human capital, organizational structure, strategic planning, and access to finance, alongside improvements in regulatory and market conditions. Therefore, the study recommends targeted capacity-building programs, financial literacy, and access to finance to improve long-term financial resilience among among Small and Medium Enterprises. JEL: G30; G32; M41; L26
