EFFECT OF PROPENSITY TO TAKE RISK ON THE PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN KENYA

Abstract

Small and medium firms are increasingly becoming important in any economy in the world. Productivity growth and consequently economic growth is strongly influenced by the performance of SMEs positively if more are born and thrive and negatively if they die and exit. Less than one-half of small start-ups survive for more than five years, and only a fraction develops into the core group of high-performance firms which drive industrial innovation and performance. The purpose of this study was to determine the effect of propensity to take risk on the performance of small and medium enterprises in Kenya. The study adopted survey research design focusing on a population of 268,100 licensed small and medium enterprises in Nairobi County in Kenya, from which a sample of 400 firms were selected through a multi-stage probability sampling method where stratified sampling method was used first and then simple random sampling from the strata for the 17 constituencies under the Nairobi county. Quantitative data was collected using questionnaires and analyzed using Statistical Package for Social Science (SPSS) and Microsoft Excel. These findings implied that SMEs owner/managers in Kenya had different levels of propensity to take risks. SMEs owner/managers that were found to be sensitive to risk avoided risk taking activities while those less risk averse engaged in the risk-taking activities. However, majority of the SMEs were found to be risk averse which explains why there was high mortality among SMEs in Kenya. Propensity to take risk among small and medium size enterprise is attributed to high performance. The study concluded that SMEs shy away from taking risks and majority prefers traditional and established revenue channels which limit the businesses from achieving competitive advantages over competitors.

Keywords: Propensity, Risk, SMEs Performance, Kenya