The impact of the CEO's financial literacy on family SMEs' growth: the moderating role of generational stage

Abstract

Purpose This study investigates the impact of the CEO's financial literacy on family SMEs' growth, as well as the moderating role of the generational stage on this relationship. Design/methodology/approach The study is based on survey data of Spanish private family firms and utilizes a second source of data, the SABI database by Bureau Van Dijk. The authors run ordinary least squares regressions and use both the base and the partition approaches to test the hypotheses. Findings The analysis reveals a positive association between the CEO's financial literacy and firm growth. However, this relationship is not uniform across generations. The CEO's financial literacy-firm growth relationship becomes weaker for first- and third or subsequent-generation family firms while becoming stronger for second-generation family firms. Originality/value This study adds the financial literacy of the CEO as a novel individual-level determinant of family firm growth. It also shows that CEOs do not always use their financial literacy to its full potential to foster growth. More specifically, the extent to which financial literacy leads to firm growth is found to be conditional on the generational stage of the family SME. The obtained findings are valuable for family SMEs intending to hire a new CEO, encouraging the financial literacy of the current CEO and educating the next generation of family members.