Entrepreneurs’ Attitudes Toward Risk in Micro and Small Enterprises: Evidence from Urban Ethiopia

The attitudes toward risk of women and men entrepreneurs in micro- and small enterprises (MSEs) are analyzed, and the factors that influence attitude toward risk of MSE owners are investigated. The empirical analysis first uses the moment-based approach proposed by Antle (1987) to estimate the risk preferences of men and women entrepreneurs. Second, a regression model is employed to understand the correlates of attitude toward risk and to decompose gender differences in risk aversion using the Oaxaca-Blinder technique. The results clearly indicate that MSE entrepreneurs are risk-averse with a relative risk premium of 1.5%. Women entrepreneurs are slightly more risk-averse than are men entrepreneurs. Regression estimates show that entrepreneurs’ attitude toward risk is significantly correlated with age and experience, marital status, education level, financial literacy, wealth, sector, and business type. The gender difference in risk aversion is significantly explained by the predictor variables while the unexplained component is insignificant. This suggests that gender differences in risk preference are the result of disparities in socioeconomic factors rather than of biology.