The relationship between SME owner-manager characteristics and risk management strategies

The relationship between managerial qualities and risk management is unclear, particularly for small and medium-sized organizations (SMEs) in developing market economies such as South Africa, because much research has focused on big enterprises in industrialized nations. To address this knowledge gap, this paper investigates the relationship between SME owner-manager characteristics and risk management, using upper echelons theory in a novel approach to provide a better understanding of how owner-manager characteristics may be linked to risk management strategies. This was achieved by the distribution of questionnaires to 320 purposely selected SMEs in Cape Town as well as personal interviews with two risk experts. The results show that risk avoidance is SMEs' most prevalent risk management strategy. The findings also show that SME owner-manager characteristics and risk management strategies are firmly and significantly linked, revealing the key determinants of effective risk management in SMEs. This paper is unique because it focuses on the often-overlooked topic of applying echelons theory to SMEs. Aside from bridging this knowledge gap, it has significant implications, such as informing SME owner-managers and policymakers on key variables that influence SME risk management strategies and making recommendations for future research.