SME Readiness for Bank Financing: A Cluster Analysis of Financial Reporting Quality and Accounting Literacy

Abstract

Access to formal bank financing among Indonesian SMEs remained limited, partly attributable to weak financial statement quality and low accounting literacy among business owners. Prior studies had generally tested the effects of these two factors in a linear, aggregate manner (a variable-centered approach), without describing how SMEs were actually distributed across combinations of readiness levels. This study aimed to identify SME readiness profiles based on financial statement quality and accounting literacy, and to examine differences in bank-SME partnership and financing access across the resulting groups. Using a cross-sectional survey of 200 SMEs in West Java, Indonesia that had applied for bank credit within the past three years, K-Means cluster analysis was applied to financial statement quality and accounting literacy scores, yielding three readiness groups: Low (n=39; 19.5%), Moderate (n=86; 43.0%), and High (n=75; 37.5%). One-way ANOVA revealed significant differences (p<.001) in bank-SME partnership and financing access across the three groups, with large effect sizes (?² = .70 and .71). Tukey HSD post-hoc tests confirmed that all pairwise group comparisons were statistically significant, indicating a consistent, graded pattern—rather than a mismatched configuration—between SME reporting-literacy readiness and financing outcomes. These findings suggested that improvements in SME readiness were gradual and holistic in nature, implying that policy interventions should be tiered according to readiness group rather than applied uniformly across all SMEs.