Academic journal article Economics & Sociology

Approach of the Sme Entrepreneurs to Financial Risk Management in Relation to Gender and Level of Education

Academic journal article Economics & Sociology

Approach of the Sme Entrepreneurs to Financial Risk Management in Relation to Gender and Level of Education

Article excerpt

Introduction

SMEs make the major contribution to economic growth and employment in the EU. In today's fierce competition the SMEs gradually developed into the dominant force for the national economic and social development (Shuying and Mei, 2014).

In the current period of time there exists a strong demand that forces entrepreneurs to bringing new ideas, products and services to the market. If the entrepreneur does not upgrade his product, the product becomes unattractive, which may finally lead to the closure of his company, that is definitely not an aim of any entrepreneur (Rajnoha and Lorincová, 2015). The global economy creates more risks for everyone, but also provides opportunities, forcing businesses to dramatic improvements not only to withstand the competition and thrive, but to survive (Hrasková and Bartosová, 2014).

With the rapid development of market-oriented economy, the SMEs mroe intensively face fierce market competition. We cannot avoid the fact, that the financial risk exists everywhere and has certain influence on enterprise's management and production. SMEs need to fully understand the characteristics, the present situation and the causes of financial risk in order to survive in the market competition and put forward effective prevention and control measures, and thus lower the possibility of occurrence of risks to ensure their development (European Association of Craft, SMEs, 2007).

Financial risk management has received increased attention over the past years because financial risks, though they are not a core competency for non-financial companies, also influence their business operations, financial performance and future to a large extend. The ability of SMEs to grow depends highly on their potential to invest in restructuring, innovation and qualification. All of these investments need capital and therefore an access to finance (European Association of Craft, SMEs, 2007; Rozborilova et al., 2015).

In this context Putuntica and Bonaci (2013) state that companies' cash flows is especially important for capital markets and investors. The influence of cash flow on investment is stronger for companies with financial constrains because internal capital is not perfectly replaceable with external capital for them.

In this article we examine important factors of financial risk for SMEs in terms of gender and level of education of entrepreneurs and their influence on the approach to financial risk management.

1. Theoretical background

Most business decisions are carried out under conditions of uncertainty. It means that uncertainty and randomness exists in the development of conditions for business activities, in the course of these activities, and also in their result does exist. If we are able to quantify the probability of deviation of actual processes and results from the expected level, then we talk about risk. The risk can be thus defined as quantified uncertainty (Fetisovová et al., 2012).

According to Hnilica and Fotr (2009) business risk can be perceived as the possibility that the values of the real business outcomes will differ from anticipated values, while these deviations may be desirable (company achieves higher profits than planned) or not desirable (company suffers loss instead planned profit), where the magnitude of the variation may be variable. The authors specify such types of risk as production, economic, market, financial, credit, legislative, political, environmental, personnel, information risks and force majeure.

Entrepreneurial risk has a complex form, since it includes a number of interconnected partial risks. Fetisovová et al. (2012) defines such types of business risk as strategic risk, operational risk, financial risk, sociopolitical risk and reputational risk.

The views of the different authors on the definition of financial risk differ to some extent. For example Fetisovová et al. (2012) states that financial risks are related to the financial markets' development and the use of single financial instruments, have a complex nature and can be classified into the following groups: funding risk, credit risk, liquidity risk, the risk of interest rate changes, currency risk, inflation risk and counterparty default risk. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.