Exploratory Factor Analysis of Risk Intelligence Factors in Nigerian Small and Medium Enterprises

Exploratory factor analysis (EFA) is usually necessary to uncover the right items for inclusion in a research instrument. As a result, this research adapts and modifies an instrument on the risk intelligence construct within small and medium enterprises (SMEs) in Nigeria. The study uses Hawley’s risk theory of profit and employs the EFA to validate the instrument. Our study differs significantly from prior studies regarding SMEs' socio-economic, political, and cultural statuses, among other factors. More importantly, most past research focused on larger firms or used different dimensions. However, the current study uniquely integrates risk perception, risk-taking propensity, and insurance literacy within Nigerian SMEs to close the literature gap. The study adopts a cross-sectional research approach using quantitative data obtained through a structured survey from 370 SMEs across Nigeria's six geopolitical regions. The study tested the validity and reliability of the constructs used and refined the 27 items used. The EFA result finally reduced the items to 24; risk perception (6 items), risk-taking propensity (9 items) and insurance literacy (9 items).