Entrepreneurial Risk Attitude in Micro and Small Enterprises: Evidence From Urban Ethiopia

Abstract

We analyze the risk attitude of women and men entrepreneurs in the micro and small enterprises (MSEs) and investigate the factors that influence the risk attitude of MSE owners. The empirical analysis of the study consists of two parts. First, we use a moment-based approach to estimate the risk preferences of male and female entrepreneurs. Second, we estimate a regression model to understand the correlates of risk attitude and decompose the gender difference in risk aversion using the Oaxaca-Blinder technique. The results indicate that MSE entrepreneurs are risk-averse, with a relative risk premium of 1.5%. We also find that females are slightly more risk-averse than male entrepreneurs. Our regression estimates show that entrepreneurs’ risk attitude is significantly correlated with the age and experience of the entrepreneur, marital status, education level and financial literacy, wealth, sector, and business form. Furthermore, the predictor variables significantly explain the gender difference in risk aversion, while the unexplained component is insignificant. This suggests that the gender difference in risk aversion is due to disparities in socioeconomic factors than a biological difference in risk preference.