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Go Back       IAR Journal of Business Management | IAR J Bus Mng, 2020; 1(4): | Volume:1 Issue:4 ( Nov. 25, 2020 ) : 291-295.
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DOI : 10.47310/iarjbm.2020.v01i04.014       Download PDF       HTML       XML

Demographic Characteristics and Risk Taking Propensity Relationship in Small and Medium Enterprises of Kurunegala District, Sri Lanka



Article History

Received: 25.10.2020; Revision: 04. 11.2020; Accepted: 19. 11.2020; Published: 21. 11.2020

Author Details

P.Venkateswarlu1, Deepal N. Perera2 and Muddu Vinay1

Authors Affiliations

1ICFAI University Dehradun, Uttarakhand

2ICFAI University Tripura, Agartala


Abstract: The small and medium enterprises have a significant role to play in the economic development of the country and they also provide employment opportunities. The demographic attributes and the risk taking propensity of the managers could influence these small and medium enterprises. This study was aimed at assessing whether relationship exist between the demographic characteristics and risk taking propensity of the managers in the SMEs in Kurunegala in Sri Lanka. The attributes considered for the study were gender, age, level of education and experience in business and served as independent variables for examining the possible relationship with risk taking propensity. The results indicated that no relationship was found between the demographic characteristics and the risk taking propensity. The Risk taking propensity was categorized into high, medium and low level risk takers. 59% respondents were medium level risk takers.


Keywords: small and medium enterprises, employment, Sri Lanka.


Introduction

Small and Medium Enterprises (SMEs) contribute substantially to the creation of jobs and SMEs sector is the largest employment provider in all the countries and also one of the sources for technological innovation and product development. SMEs contribute to bring out innovations and they are the stimulants for larger business entities.


Sri Lanka is very conducive for startups and encourages starting up micro and small enterprises to boost economic development. Steady growth has been shown in the last decade in Sri Lanka among the challenges persist in macroeconomic level. SMEs gained recognition in Sri Lanka as a source of employment, poverty alleviation and income generation over the years. Though SMEs play a great role in every country, they also face lot of challenges because of the fast changing business environment. Several instances, the skills, competency and resources that are available to SMEs are insufficient to face the fast growing technological changes, uncertainties in the markets and competition (www.worldbank.org).


Large percentage of population lives in rural areas in Sri Lanka. For the people living in the rural areas, the employment generator and source of food for their livelihood is only the small scale industries. The governments have realized the importance of SME sector. Having realized the importance of the SMEs in economic development and growth, governments have taken initiatives to develop SME sector.


The purpose of this study was to assess whether the relationship exist between levels of risk-taking propensity and demographic attributes of SMEs owners in Kurunegala District, Sri Lanka. Risk taking propensity is the willingness of the entrepreneurs to take certain amount of risk while taking business decisions. It is assumed that the risk taking propensity may vary among individuals as some entrepreneurs would take very high risk and some may be averse to taking risk. The current research study will be able to contribute to the understanding of the risk taking propensity of the owners or managers of SMEs within the context of varying cultures in Sri Lanka. This study will also enhance the understanding as to how the demographic characteristics affect the risk taking propensity of the owners of SMEs.


Literature review

Risk Taking is inherent for any business, but normally the entrepreneurial firms take more risk than non-entrepreneurial firms (Lumpkin and Dess, 1996). Cunningham and Lischeron (1991) defined risk management as a process where potential risk to the firm is identified, analyzed and studied thoroughly, mitigate the risk and prevent with processes that balance the cost of protecting the firm from risk. The literature pertaining to the entrepreneurship and strategic management, risk taking has come out as one of the factors affecting the posture of the firm. It shows the firms propensity to allocate sizable resources to the projects which have probability of failure along with getting chance of high returns (Feifei, 2012). Risk discloses the firm’s propensity to act aggressively on the upcoming market opportunities and taking bold decisions (Fiegenbaum and Thomas, 1988).


Sarasvathy et. al. (1998) observed that entrepreneurs are more prone to taking risk as part their daily business operations. In contrast to this, the non-entrepreneurial firms adopt the policy of wait and see, follow the competitors and maintain the status quo which results them firms into losses. The risk taking propensity of the firm can be measured through its actions such as (i) committing or allocating major part of resources on unknown markets; (ii) venturing into unknown business activities; and (iii) heavy borrowings (Baird and Thomas, 1985).


Risk is an integral part in the business. Business activity such as new products, new markets, production of methods, new technology, new processes and services, aggressive attitude towards competitors, hiring of personnel and capital structure involves to some extent some degree of risk, but to manage with it is to identify it at inception (Cornelia, 1996).


Shivani et al., (2006) conducted a study for the measurement of risk taking propensity with 15 being the highest score. It is indicative that the higher the score, the propensity of taking risk is higher. It was categorized into three levels low risk taking propensity (0 to 5), moderate (6 to 10) and high risk taking propensity (11 to 15). The results revealed that large portion of the respondents possessed low level risk takers.


Walker et al., (2006) conducted research on 1600 women entrepreneurs in Australia to study the risk taking propensity. They had only 30% response rate and the results indicated that women were more emotionally average to taking risk than male counterparts. The younger generation entrepreneurs were more risk averse than the older generation entrepreneurs. They had observed that significant differences existed among genders and age in the event of motivation to start business.


Research Design

275 SMEs were selected randomly from the list of registered manufacturing and services sector from 30 Divisional Secretariats Areas to represent each District Authority. Sampling approach followed was non-probabilistic where sample is assumed to have even characteristics to make the results more accurate. The following hypotheses were tested in the study:

H1 = Significant relationship exists between Age of the owner/manager and Risk Taking Propensity.

H3 = Significant relationship exists between Education of the owner/manager and Risk Taking Propensity.

H3= Significant relationship exists between Business Experience of the owner/manager and Risk Taking Propensity.


The data was collected through a questionnaire using the combination of judgement and convenience sampling covering the demographic characteristics, risk taking propensity and business performance. Data was collected on a Likert 5 point scale (1 = Never, 2=Rarely; 3= Sometimes; 4=Often and 5=Very Often).


Results

Analysis of demographic profiles of respondents

Out of 275 sample population, 88% were males compared to 12% females. The respondents were in majority in the age group of 41 to 50 years (42%), 31% in the age group of 31 to 40 years, 19% were 50 years and above and 9% in the age of 21 to 30 years. 19% of the respondents had only Higher Secondary Education, majority had Degree (52%) and 29% were post graduates. 60% of the respondents had working experience of 11 to 15 years, 13% of the respondents had less than 5 years and 6-10 years of experience respectively, only 5% had 6 to 10 years and 10% had 20 and above years of experience.


Analysis of Risk Taking Propensity

The table 1 indicates the mean of risk taking propensity. The variable “willing to invest a significant amount of resources to opportunities which has led to increased market share” had highest mean of 3.89 and the lowest mean of 3.25 for the variable “wait and see posture to maximize potential exploitation of opportunities. The results indicated that firms are willing to invest money to increase their market share and also invest into unknown high risk projects.


Table 1. Descriptive Statistics of Risk Taking Propensity

Dimensions

Mean

Std. Deviation

In the event of any confrontation with decision making in un-certainty, our managers adopt ‘wait-and-see’ posture to maximize potential exploitation of opportunities (Wait & Watch Posture)

3.25

.870

We venture into new markets, which has promoted the performance of business (new markets)

3.76

1.014

Committing a large amount of money to high risk projects has helped to improve the profitability of my business (high risk projects)

3.84

.939

We are willing to invest a significant amount of resources to opportunities which has led to increased market share (Investment)

3.89

.924

Our managers believe that bold, wide-ranging acts are required depending on the nature of the environment to achieve the objectives of the firm (Bold Decision).

3.64

.926


The demographic characteristics such as gender, age, education, experience of the owner/CEO/manager and the risk taking propensities were collected. The risk taking propensities were categorized as low, medium and high level based on Mean + SD.


Data was analyzed to measure the level of risk-taking propensity among SMEs and is presented in Table 2. Results showed that a 59% of the respondents were medium risk takers and 23% were low risk takers and 18% of the respondents were high risk takers (table 2).


Table 2. Levels of Risk Taking Propensity

Level of Risk Taking Propensity

Frequency (N=275)

Percentage

Low

64

23%

Medium

162

59%

High

49

18%

Analysis of Degree of Risk taking Propensity with Demographic Characteristics

Data was analyzed to assess to study the influence of demographic variables on the risk taking propensities of the owners/managers of SMEs. Demographic variables such as Gender, Age, Education and Experience of the owners or managers of the Small and Medium Enterprises in Kurunegala District, Sri Lanka were considered using cross tabulation analysis for assessing the overall risk taking propensity. The summary of the results are given in Table 3.


Risk Taking Propensity and Gender

The table also showed that 88% (242 respondents) were male and 12% (33 respondents) were females. Cross tabulation of the degree of risk taking propensity and gender indicates that 58.9% (162 respondents) of the respondents had the medium levels of risk-taking propensity, of which 51.3% (141 respondents) of them were male respondents and 7.6% (21 respondents) were female.


23.3% of the respondents were low risk takers, out of which 2.5% were females and 20.7% were males. 17.8% of the respondents were high risk takers distributed by 1.8% males and 16% females. Male respondents were high risk takers when compared to female respondents.


Risk-taking propensity level and Age

When analyzed age versus the degree of risk taking propensity, there were 42.2% (116 respondents) in the age group of 41 to 50 years, 30.5% (84 respondents) in the age group of 31 to 40 years followed by 18.5% (51 respondents) who were more than 50 years of age. 119 respondents in the age of 31 to 50 years had medium level of risk taking propensity. The results indicated that high level of risk taking propensity came from the age group of 41 to 50 years.


Risk-taking propensity level and Education

Table showed that 18.9% (52 respondents) had only higher secondary education, 52.4% (144 respondents) were degree holders and 28.7% (79 respondents) were post graduates. Owners or managers who have degree level of education 29.1% (89 respondents) and post graduation education 18.2% (50 respondents) had medium degree of risk taking propensity. 14% of the degree education managers had low level of risk taking propensity and 9.1 (25 respondents) who had post graduation education had higher level of risk taking propensity. The results indicated that owners who had only degree education were able to decide on to take the risk or not.


Risk-taking propensity level and business owners’ experience

Considering the length of owner/managers experience with risk taking propensity, 60% (165 respondents) had 11 to 15 years of business experience, which represents 36% (99 respondents) had medium degree of risk taking propensity, 12.7% (35 respondents) had low level of risk taking propensity and 11.3% (31 respondents) had high level of risk taking propensity. It is interesting to note that higher the experience of the owner/manager, the lower the degree of risk taking propensity.


Table 3. Degree of Risk Taking Propensity for Demographic Characteristics

Demographic Variables

Degree of Risk Taking Propensity

Total


Low level

Medium Level

High Level

F

%

F

%

F

%

F

%

GENDER

Female

7

2.5

21.0

7.6

5.0

1.8

33.0

12.0

Male

57

20.7

141.0

51.3

44.0

16.0

242.0

88.0

Total

64

23.3

162.0

58.9

49.0

17.8

275.0

100.0

AGE

21-30

5

1.8

15.0

5.5

4.0

1.5

24.0

8.7

31-40

21

7.6

50.0

18.2

13.0

4.7

84.0

30.5

41-50

27

9.8

69.0

25.1

20.0

7.3

116.0

42.2

50 and above

11

4.0

28.0

10.2

12.0

4.4

51.0

18.5

Total

64

23.3

162.0

58.9

49.0

17.8

275.0

100.0

EDUCATION

HSC

8

2.9

32.0

11.6

12.0

4.4

52.0

18.9

Degree

39

14.2

80.0

29.1

25.0

9.1

144.0

52.4

PG

17

6.2

50.0

18.2

12.0

4.4

79.0

28.7

Total

64

23.3

162.0

58.9

49.0

17.8

275.0

100.0

EXPERIENCE

Less than 5 years

8

2.9

23.0

8.4

3.0

1.1

34.0

12.4

6-10 YEARS

12

4.4

19.0

6.9

5.0

1.8

36.0

13.1

11-15 years

35

12.7

99.0

36.0

31.0

11.3

165.0

60.0

16-20 YEARS

3

1.1

7.0

2.5

3.0

1.1

13.0

4.7

20 and above

6

2.2

14.0

5.1

7.0

2.5

27.0

9.8

Total

64

23.3

162.0

58.9

49.0

17.8

275.0

100.0


Relationship of risk-taking propensity with demographic Characteristics

Correlation analysis was carried out to investigate the relationship between risk taking propensity and demographic variables of SMEs. The results are presented in table 4.


Table 4. Relationship between Demographic Variables and


Age

Education

Experience

Risk Taking

Age

1.000




Education

0.043

1.000



Experience

0.741**

0.087

1.000


Risk Taking Propensity

0.029

-0.051

0.058

1.000

** significant at the 0.01 level


Table 4 correlation analysis indicates that no relationship exist between the risk taking propensity and the age group r= 0.029 (not significant), hence the hypothesis H1 that relationship exist between the age of the owner/manager and risk taking propensity is rejected. It implies that the attitude of the SMEs towards taking risk to venture into new markets and invest money into unknown markets does not increase with the age.


Table 4 correlation analysis indicate that there is no relationship between risk taking propensity and education levels of the owners/managers r=-0.051 (not significant), hence hypothesis H2 that there is significant relationship between risk taking propensity and education levels of the owners is rejected. It implies that business owners or managers with different levels of education also had the similar propensities for risk taking.


Table 4 correlation analysis showed that there is no relationship between risk taking propensity and the business experience of the owner/manager r=0.058 (not significant), hence the hypothesis H3 that there is significant relationship between experience and risk taking propensity is rejected. It implies that the owners/managers of the SMEs in spite of having business experience they are not risk takers as experience does not increase their ability to take risks.


Conclusion

The study was aimed at investigating the relationship between risk taking propensity and the demographic characteristics of owners of SMEs in Kurunegala District, Sri Lanka. Carland et al. (1999) in their research study observed that demography had influenced entrepreneurs risk taking propensity. However, the findings from the current study on the contrary indicated that demographic characteristics such as age, gender, level of education and experience in business do not have any influence on the risk taking propensity by the owners of small and medium enterprises in Kurunegala.


It may be explained that the SMEs in Kurunegala are averse to taking risk, hence the degree of risk taking propensity does not increase with the age, education or the business experience which are in support of the research by Salleh et al., (2013). The results cannot be generalized and applicable to all provinces in Sri Lanka as it is important to recognize that the sample consisted of SMEs with less experience could lead to biased outcome.


References

  1. Baird, I. S., & Thomas, H. (1985). Toward a contingency model of strategic risk taking. Academy of management Review10(2), 230-243.

  2. Carland, J. C., Carland, J. W., & Stewart, W. H. (1999). “Is risk taking an attribute of entrepreneurship?: A comparative analysis”, Academy of Entrepreneurship Journal, 5 (2), pp. 36-49.

  3. Cornelia, D. (1996). “New product strategy, structure and performance in two environments”, Industrial Marketing Management, 25(6), pp. 555-566.

  4. Cunningham, J. B., & Lischeron, J. (1991). “Defining entrepreneurship”, Journal of Small Business Management, 29 (1), pp. 45-61.

  5. Feifei, Y. U. (2012). “Strategic flexibility, entrepreneurial orientation and firm performance: Evidence from small and medium-sized business (SMB) in China”, African Journal of Business Management, 6(4), pp. 1711-1720.

  6. Fiegenbaum, A., & Thomas, H. (1988), “Attitudes toward risk and the risk–return paradox: prospect theory explanations”, Academy of Management Journal, 31(1), pp. 85-106.

  7. https://www.worldbank.org/en/country/srilanka /overview.

  8. Lumpkin, G. T., & Dess, G. G. (1996), “Clarifying the entrepreneurial orientation construct and linking it to performance”, Academy of Management Review, Vol. 21, No. 1, pp. 135-172.

  9. McGrath, R. G. (1999). “Falling forward: Real options reasoning and entrepreneurial failure”, Academy of Management Review, 24 (1), pp. 13-30.

  10. Salleh, F., & Ibrahim, M.D. (2013). ‘The relationship between risk-taking propensity and demographic characteristics among MSEs in Malaysia’, J. Global Business Advancement, 6 (1),

  11. Sarasvathy, D. K., Simon, H. A., & Lave, L. (1998). “Perceiving and managing business risk: Differences between entrepreneurs and bankers”, Journal of Economic Behaviour and Organization, 33(2), pp. 207-225.

  12. Shivani, S., Mukherjee, S.K., & Sharan, R. (2006). ‘Socio-cultural influences on Indian entrepreneurs: the need for appropriate structural interventions’, Journal of Asian Economics, 17, (1), pp.5–13.

  13. Walker, E., Geddes, D., & Webster, B. (2006). ‘Risk taking propensity of new women owners: the importance of age’, Proceedings Babson College Entrepreneurial Research Conference, Indiana, USA, Accessed from http://eprints.qut.edu.au.


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