Risk Attitudes, Risk Management And Business Success Of Micro And Small Informal Agribusiness Entrepreneurs In Ghana: The Case Of Agri-Food Processors

Abstract

Entrepreneurs operating micro and small informal firms including agribusinesses in Ghana face many risks which adversely affect the growth of their firms and subsequent business success. Although risk management is very critical to agriculture related firms, agricultural policies in Ghana have been designed without much consideration to this important aspect of firm management. The impending ‘one-district-one-factory’ policy of the current government for example would need to consider risk management of the firms that would be involved since risk management would influence managerial decisions. The success of the policy would partly be hinged on the ability of entrepreneurs involved to manage risks in a more informed position. The aim of this study was three-pronged. First, it elicited the risk attitudes of entrepreneurs, assessed the factors that influenced the attitudes and examined how entrepreneurs perceived certain risk sources as important to the agribusiness environment in Ghana. Second, the study sought to estimate the effect of entrepreneurs’ risk management practices on agribusiness firm growth. Linear regression models were utilised in achieving these two objectives. Third, the study sought to understand the personality traits of entrepreneurs and what accounted for their business success applying the personality trait theory as attribution to business success of the entrepreneur using an ordered logit model. To elicit entrepreneurs’ risk attitudes, the psychometric theory was utilised. The Domain-Specific Risk-Taking (DOSPERT) instrument which lists hypothetical questions that elicit risk perception and risk propensity was used to elicit the risk attitudes of entrepreneurs. Risk attitude was measured as a combination of the scores from risk perception and propensity. The sample analysis utilised data from 159 entrepreneurs (owners) of micro and small firms in agri-food processing in the Greater Accra and Ashanti regions of Ghana. The results showed that about 61% of entrepreneurs were risk seeking individuals. Using a linear regression model, aged and married entrepreneurs showed more risk aversion behaviour. Education exerted no effect on risk attitudes. Male entrepreneurs were more risk seeking compared to females. Results showed that aged entrepreneurs do not give much credence to general economic/political risk as an important risk source to affect them but considered human risk (sickness and death) as important. Female entrepreneurs did not consider market risk as important enough to affect the business environment probably because they had found innovative ways in marketing and these innovations reduced the effect of market risks on their businesses. Subscription to formal insurance showed a positive and highly significant impact on firm growth. To further understand the underlying factors responsible for levels of business success achieved by entrepreneurs, their personality traits using three dimensions (locus of control, self-efficacy and motivation) were estimated. The general conclusion was that the entrepreneur’s psychological disposition has significant effects on business success. Recommendations for this study include initiation and facilitation for the development of marketing cooperatives (as a risk management tool for entrepreneurs) to negotiate fair prices to help mitigate marketing risks. Again, targeted education on the importance of subscription to insurance packages (a risk management tool which significantly and positively affected firm growth) to alert entrepreneurs of the need to insure their businesses and enjoy the inherent benefits is suggested.