The Impact of Financial Literacy on New Venture Survival

Abstract

This is an investigation into the impact of financial literacy on new venture survival. A model is proposed in whichincreased adoption of financial tools (e.g. financial statements and financial ratios) leads to increased frequency offinancial statement generation which in turn increases the likelihood of loan repayment and decreases theprobability of venture failure. A structural model was then tested using data from 509 young entrepreneurs inCanada who had received start up loans through their participation in a program by the Canadian Youth BusinessFoundation. This research found that increases in financial literacy led to more frequent production of financialstatements. This research found that entrepreneurs who produced financial statements more frequently had ahigher probability of loan repayment and a lower probability to close their venture involuntarily.