Exploring the Role of Financial Literacy in Enhancing Firm Access to Finance: Insights from Romania

This paper employs Romanian firm-level microdata to assess the impact of financial literacy on access to bank loans on the extensive margin (the probability of being granted a loan) using logit model as estimation method. To pursue this research objective, we use granular and unique data from the Credit Registry, from the financial statements submitted by firms to the Ministry of Finance, while financial literacy data was collected through a survey on 11,000 firms representative nationally, regionally, by sector and size. We fill important gaps in the literature, given that most existing empirical studies are generally based on small samples, of firms mainly located in non-EU areas, while the lack of financial literacy definition standardization has led to inconsistent and unreliable results in the existing literature. We address this issue, by employing internationally accepted definitions, respectively the OECD methodology, for assessing MSMEs financial literacy. We find that firm characteristics, such as size, together with financial standing illustrated in liquidity, profitability and leverage ratios and creditworthiness illustrated in credit history and loan to value are significant predictors of firms’ access to finance. More importantly, we provide evidence that financial literacy positively and significantly impacts access to finance, while among financial literacy components, financial attitude and financial knowledge have the strongest influence. This study’s findings provide valuable insights for both policymakers and firms for improving access to bank loans, leading to a more inclusive and efficient lending environment, with effects on economic growth and financial stability.