Entrepreneurs’ Attitudes Toward Risk in Micro and Small Enterprises: Evidence from Urban Ethiopia

24 Pages Posted: 1 Mar 2019

See all articles by Abdelkrim Araar

Abdelkrim Araar

Université Laval - Département d'Économique

Yesuf Mohammednur Awel

United Nations Economic Commission for Africa

Jonse Bane Boka

Addis Ababa University

Hiywot Menker Girma

University of Johannesburg

Ajebush Shafi

Tshwane University of Technology - Business School

Eleni Abraham Yitbarek

Maastricht University

Mulatu Zerihun

Tshwane University of Technology

Date Written: February 28, 2019

Abstract

The attitudes toward risk of women and men entrepreneurs in micro- and small enterprises (MSEs) are analyzed, and the factors that influence attitude toward risk of MSE owners are investigated. The empirical analysis first uses the moment-based approach proposed by Antle (1987) to estimate the risk preferences of men and women entrepreneurs. Second, a regression model is employed to understand the correlates of attitude toward risk and to decompose gender differences in risk aversion using the Oaxaca-Blinder technique. The results clearly indicate that MSE entrepreneurs are risk-averse with a relative risk premium of 1.5%. Women entrepreneurs are slightly more risk-averse than are men entrepreneurs. Regression estimates show that entrepreneurs’ attitude toward risk is significantly correlated with age and experience, marital status, education level, financial literacy, wealth, sector, and business type. The gender difference in risk aversion is significantly explained by the predictor variables while the unexplained component is insignificant. This suggests that gender differences in risk preference are the result of disparities in socioeconomic factors rather than of biology.

Keywords: risk aversion, gender, micro- and small enterprises

JEL Classification: D14, J16, M21

Suggested Citation

Araar, Abdelkrim and Awel, Yesuf Mohammednur and Boka, Jonse Bane and Girma, Hiywot Menker and Shafi, Ajebush and Yitbarek, Eleni Abraham and Zerihun, Mulatu, Entrepreneurs’ Attitudes Toward Risk in Micro and Small Enterprises: Evidence from Urban Ethiopia (February 28, 2019). Partnership for Economic Policy Working Paper No. 2019-05. Available at SSRN: https://ssrn.com/abstract=3344632 or http://dx.doi.org/10.2139/ssrn.3344632

Abdelkrim Araar

Université Laval - Département d'Économique ( email )

CREFA
Ste-Foy, Quebec 179Que G1K
Canada

Yesuf Mohammednur Awel (Contact Author)

United Nations Economic Commission for Africa ( email )

Addis Ababa
Ethiopia

Jonse Bane Boka

Addis Ababa University ( email )

King George VI St
Addis Ababa, 1000
Ethiopia

Hiywot Menker Girma

University of Johannesburg ( email )

PO Box 524
Auckland Park
Johannesburg, Gauteng 2006
South Africa

Ajebush Shafi

Tshwane University of Technology - Business School ( email )

Staatsartillerie Rd
Philip Nel Park
Pretoria, 0183
South Africa

Eleni Abraham Yitbarek

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Mulatu Zerihun

Tshwane University of Technology ( email )

Staatsartillerie Rd
Philip Nel Park
Pretoria, 0183
South Africa

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