A STUDY ON RISK APPETITE OF SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA AND ITS INFLUENCING FACTORS
CHAPTER ONE
INTRODUCTION
BACKGROUND OF THE STUDY
The level of industrialization any nation can attain at a particular point in time is hinged on the prevailing entrepreneurial activities in that nation. At the same time, no economy can effectively grow without active roles of SMEs that shape the entrepreneurial activities in the country. Indeed, it has been acknowledged that SMEs are engines to achieving growth objectives of developing countries because they mobilize idle funds, employ and adapt easily to customers’ needs (Abotsi, Dake & Agyepong, 2014; and Luper & Kwanum, 2012). However, significant numbers of SMEs have been reported to fail before attaining fih year of their incorporation due to lack of funds (Bank of England, 2014; Rogerson, 2011; Skinner, 2011). To understand the pattern of SMEs’
survival in Nigeria, there is need to come up with models that explain their growth rate instead of relying on the use of simple percentages. Previous studies (such as Abotsi et al, 2014; Berger and Udell, 2014; and Reynolds & Lancaster, 2011) have focused on how the physical assets can be protected and prevent the occurrence of business leads to strengthen the survival of SMEs. As at the time of this study, there has not been evidence of any previous study that applied reliability theory to predict the survival pattern of SMEs. At best, previous studies only use mean/standard deviation test to report how SMEs failed owning to financial and other environmental factors. Acerbi [2008] defines the term risk as the possibility for danger, negatively unexpected circumstance to
occur. In most of economic publications, risk refers to the negative deviation from the plan. In finance, risk is related to hazard towards an investment, or loan. In terms of business organisations, risk is the possibility that an event, either expected or unexpected, may create an unfavorable eect on the organizations. Small and medium-sized enterprises (SMEs) play significant roles in the world economy and contribute substantially to income, output and employment. According to Henderson, (2010) stated that SMEs connect the community to the larger global economy, and they are the vital link to the economic development of any nation (Thurik and Wennekers, 2013). Indeed, they function as a source of innovation, technological growth, and creation of
recent job (Wiklund et al., 2009). In the Nigerian macroeconomic and political environment, SMEs have compelling growth potential and like other emerging economies are likely to constitute a major portion of GDP in the near future. According to Nwankwo et al. (2012) SMEs sector provide, an average of 50% of Nigeria‘s employment and 50% of its industrial output. Thus, SMEs are very important part of the Nigerian economy. One of the most important issues in the area of research particularly in SMEs is the antecedent that leads to the eective performance of SMEs. Characteristics that connect leadership and entrepreneurship are some of the things or events that influence organisational performance, the characteristics consist of innovation, vision, risk-taking, pro-activeness, strategic initiative, problem solving, strategic planning and decision making (Cogliser and Birham, 2013; Fernald et al, 2011 and Saher, 2013). These characteristics some are more related to entrepreneurship while others are more related to leadership. Four of these characteristics can be used to
examine their relationship with SMEs performance in Nigeria based on review of literature; they include vision, innovation, pro-activeness and risk-taking. Thus, this paper will examine risk appetite of small and medium enterprises in Nigeria by reviewing some of the previous literature.
