Interdependence of Influence between Risk Management Behavior, MSME Characteristics, and Overconfidence on Business Sustainability (A case study in Indonesia)

Tyoso Jaluanto,Eliza Devita,Sukardi Sukardi

doi:10.52459/jowett1391221

Abstract

More than 50% of Micro, Small, and Medium Enterprises (MSMEs) in Indonesia run their business for reasons of livelihood, while 30% do this since MSMEs are profitable, and may support their living costs. This study aims to determine and analyze the influence of risk management behavior, characteristics of MSMEs through overconfidence on MSME business sustainability, and consequently MSMEs as a source of livelihood. The result of this study indicates that risk management behavior has a significant positive effect on overconfidence, while the characteristics of MSMEs have a significant negative effect on that. In turn, it’s shown that overconfidence had a positive and significant effect on the sustainability of MSMEs. However, the characteristics of MSMEs and risk management behavior had no significant positive effect on the sustainability of MSMEs. These results indicate also that MSME entrepreneurs’ overconfidence plays a major role in managing their business, which could be considered by the local government and/or the central government in determining MSME policies, such as placements to sell which are given and regulated by each local government considering the accessibility of sellers and buyers as well as their safety.

Highlights

The Ministry of Cooperatives and Small and Medium Enterprises (SMEs) of the Republic of Indonesia reported that in terms of units, Micro, Small and Medium Enterprises (MSMEs) have a share of around 99.99% (62.9 million units) of the total business actors in Indonesia, while large businesses were only 0.01% or around 5400 units
This meant that totally, MSMEs absorbed around 97% of the national workforce, while large businesses only absorb about 3% of the total national workforce
MSMEs based on this law have the possibility of growth, which in the future will be a trigger of the rate of economic growth in the whole country, and can become a very large national economic asset

Summary

Introduction

The Ministry of Cooperatives and Small and Medium Enterprises (SMEs) of the Republic of Indonesia reported that in terms of units, Micro, Small and Medium Enterprises (MSMEs) have a share of around 99.99% (62.9 million units) of the total business actors in Indonesia, while large businesses were only 0.01% or around 5400 units. Micro enterprises absorbed around 107.2 million workers (89.2%), small enterprises 5.7 million (4.74%), and medium enterprises 3.73 million (3.11%); while big enterprises absorbed around 3.58 million people. This meant that totally, MSMEs absorbed around 97% of the national workforce, while large businesses only absorb about 3% of the total national workforce. The Ministry of Cooperatives and SMEs run three priority programs to support MSMEs to become national economic assets, namely: providing national-scale MSME empowerment through the entrepreneurial movement, providing various programs to develop cooperatives and MSMEs, and providing easy access to financing for cooperatives and MSMEs

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Conclusion