Date of Award

5-2025

Degree Type

Doctoral Dissertation

Degree Name

Doctor of Business Administration (DBA)

Department

Jack Welch College of Business & Technology

Comments

Submitted as partial fulfillment of the requirements for the degree of Doctor of Business Administration in Finance Sacred Heart University, Jack Welch College of Business and Technology, Sacred Heart University

Dissertation Number DBA05/2025

Dissertation Supervisor

Dr. Mahfuja Malik

Committee Member

Dr. Lorán Chollete

Committee Member

Dr. Fatima Jebari

Abstract

This study examines the influence of financial literacy on firm performance by integrating state-level financial literacy data with firm-level metrics including Market Capitalization, Tobin’s Q, ROA, ROE, and EBIT. Utilizing data from the National Financial Capability Study (NFCS) and COMPUSTAT for the years 2009 to 2024, and a sample size of 100,126 observations, it highlights how higher levels of financial literacy correlate with improved firm valuation and profitability. The study employs the Financial Literacy Index and its imputed counterpart using the Fully Conditional Specification (FCS) method to address missing data. Regression analyses reveal that financial literacy significantly impacts both valuation and profitability measurements, though the results vary across metrics. For valuation measurements, higher levels of financial literacy are negatively associated with Market Capitalization, demonstrating financially literate environments reduce overvaluation and speculative pricing, aligning firm valuations more closely with intrinsic fundamentals. Similarly, financial literacy positively influences Tobin’s Q, suggesting that firms in regions with higher financial literacy levels are more efficient in utilizing their assets relative to market expectations. The impact on Tobin’s Q is mixed, with mostly negative results but some positive estimates in specific models, indicating that financial literacy moderates speculative pricing but may also improve valuation recognition for firms with strong fundamentals. For profitability measurements, financial literacy is positively associated with ROA, demonstrating that firms in financially literate regions optimize asset utilization and enhance operational efficiency. The impact on EBIT is mixed, showing that while financial literacy can contribute to improved profitability, its effect varies based on industry dynamics and external market factors. The relationship with ROE is statistically insignificant across most models, suggesting that shareholder returns may be influenced by additional factors such as corporate governance, leverage decisions, and financing structures rather than financial literacy alone. These findings highlight the dual role of financial literacy in reducing speculative valuations and enhancing operational efficiency. However, its effects vary across firm performance metrics, suggesting context-dependent influences shaped by industry, macroeconomic conditions, and governance factors. The use of imputation methods strengthens data integrity, ensuring a rigorous assessment of financial literacy’s impact. Future research should explore sector-specific variations and long-term trends to better understand its evolving role in corporate financial decision-making.

JEL Classification

G30, G40, M14, D14, D24

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.


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