Enhancing Financial Performance In Smes: The Role Of Risk Perception, Management Practices, And Investor Relations In Equity-Based Financing

Abstract

This study examines the relationships among risk perception, risk management practices, financial performance, and investor relations in small and medium-sized enterprises (SMEs) engaged in equity-based financing. SMEs play an essential role in economic development; however, they often face significant challenges in securing equity financing due to various risks. Using a Structural Equation Modeling (SEM) approach, this study aims to examine how these variables influence one another. A quantitative methodology was employed, involving a purposive sampling of SMEs engaged in equity-based financing within the last five years, with data collected via structured questionnaires. The findings reveal that heightened risk perception positively influences adopting robust risk management practices, significantly enhancing financial performance. Strong investor relations were found to moderate the relationship between risk management practices and financial performance, strengthening this association. These results underscore the importance of effective risk management strategies and strong stakeholder relationships in improving SMEs' financial performance. The study provides insights for SME owners and policymakers to identify the risks related to equity-based financing more effectively for sustainable growth and innovation in the Islamic finance sector.