Attitude towards risk and entrepreneurship development in emerging economies: the Case of Bangladesh

Abstract

Bangladesh is a large and densely populated country which is striving to advance its economic growth. Stimulating entrepreneurship activities could be an effective vehicle for achieving progress. Risk is an integral part of any business and it can act as an important deterrent or motivation for entrepreneurship development. There are two sides to risk: the potential for loss (downside) and the opportunity for higher profit and growth (upside). Both the downside and the upside of risk are relevant when considering or evaluating business ventures. In this study we discuss the implied impact of investors' risk attitude on entrepreneurship motivations. We surveyed a large sample of Bangladesh investors and potential investors with varying degrees of different characteristics to learn about their attitude towards risk. We found that the following variables affect the motivations for entrepreneurship development in Bangladesh: (1) the degree to which the compensation of the decision-maker is tied to the success of the decision; (2) the investment time-horizon; (3) the experience; and finally, (4) the degree to which the decision-maker shares the decision with others or whether the responsibility is borne solely by the decision-maker. We have two main recommendations: First, that compensation schemes of decision-makers should be tied, to the extent possible, to the success of the investments. Second, that the performance evaluation should be made with a long-term view rather be based on short-term accomplishments. We believe that by appropriately modifying decision-makers' behavior by offering adequate sets of incentives, Bangladesh can materialize its great potential. By stimulating its entrepreneurship development, Bangladesh can take advantage of its population and geography to experience great economic growth.