Pathways to Cash Flow Agility through Working Capital Flexibility among Micro, Small, and Medium Enterprises

Abstract

This study investigates how financial literacy and management practices are associated with cash flow agility through working capital flexibility among active micro, small, and medium-sized enterprises (MSMEs) surveyed on Tidore Island, Indonesia. A quantitative crosssectional design was employed using data collected from 384 MSME owners and managers through a field-based convenience sampling procedure. The data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM). The results indicate that financial literacy is not significantly associated with cash flow agility, whereas management practices are positively associated with cash flow agility. Both financial literacy and management practices are positively associated with working capital flexibility. Among the examined relationships, working capital flexibility exhibits the largest standardized direct coefficient for cash flow agility, although its effect size is small (f² = 0.146). Indirect-effect analysis indicates significant indirect relationships between financial literacy and cash flow agility and between management practices and cash flow agility through working capital flexibility. These findings indicate that working capital flexibility represents an important statistical link between financial and managerial capabilities and adaptive cash flow responses among the surveyed MSMEs. However, because this study employed a cross-sectional design and field-based convenience sampling, the findings should be interpreted as associational rather than causal and generalized cautiously beyond the sampled MSMEs.