Mediating effect of risk management practices on the relationship between owner's risk attitude and business performance of small and medium enterprises: evidence from north central province of Sri Lanka

Abstract

Small and Medium Scale Enterprises (SMEs) are known as an important strategic sector which has the potential to contribute towards GDP, employment generation, poverty alleviation and regional development particularly in the developing countries such as Sri Lanka. However, the main issue of SMEs is poor business performance that affects adversely their survival in the long run. Among other reasons, poor risk management practices have been identified as a main cause for such failures. Although risk taking is a fundamental for business performance, not managing the former properly will have an adverse impact on the latter. Therefore, this study aims to investigate the mediating impact of risk management on the relationship between owner's risk attitude and business performance. The study was a basic explanatory type quantitative examination that followed the deductive reasoning method. A conceptual framework has been developed based on the literature survey that provided the basis for empirical investigation. Out of the SMEs established in the North Central Province of Sri Lanka, 200 SMEs have been selected as the sample of the study following the random sampling procedure. Data were collected on researcher-administrated questionnaires and were analyzed using SPSS statistical package. As per the stepwise regression analysis, it was found that risk management practices of SMEs mediate the relationship exists between the owner's risk attitude and business performance. Based on the findings, the study recommends that owners of SMEs should implement appropriate risk management practices in their SMEs while government institutions related to the SME sector should provide them with necessary support to establish proper risk management practices in their organizations.