A PLS-SEM APPROACH TO ENTERPRISE RISK MANAGEMENT AND PERFORMANCE OF SMEs IN GHANA

Abstract

The purpose of this study is three-fold. First, examine the effect of ERM on the operational and financial performances; second, the effect of competitive advantage on operational and financial performances; and third, explore the mediating roles of competitive advantage and financial literacy on the relationship between ERM and the operational and financial performances of SMEs in Ghana. Sampling 8,384 SMEs purposively, the analytical framework was based on SMART PLS-SEM. The empirical results reveal that ERM just as competitive advantage are positive determinants of financial and operational performances of SMEs. Financial literacy does not mediate the relationship between ERM and financial performance, although it partially mediates the relationship between ERM and operational performance just as competitive advantage partially mediates ERM and financial performance. Competitive advantage mediates between ERM and operational performance of SMEs in Ghana. Therefore, effective ERM practices and competitive advantage strategies are necessary conditions for the long-run sustainability of Ghanaian SMEs by way of improved financial and operational performances, given that the key officers are financial literate.