Abstract:
1. Introduction
Small and Medium Enterprises (SMEs) significantly impact economic
growth, particularly in developing countries like Sri Lanka. Despite the
numerous businesses initiated annually, SMEs in Sri Lanka experience
high failure rates, minimal growth, and low survival. This study examines
the determinants of investor behaviour of SMEs of Badulla District during
economic and political crises prevailing from 2019 to the present.
2. Research Methodology
Using a quantitative approach, 350 manufacturing SMEs in Badulla District,
Sri Lanka, were surveyed via structured questionnaires. The dependent
variable was investment behavior, while independent variables included
fear of political instability, risk perception, risk propensity, and herding.
Convenience sampling and regression analysis were used to determine
influential factors.
3. Findings and Discussion
The research showed a decline in SME investment decisions, largely
driven by fear of political and economic instability. Risk perception and
propensity influenced entrepreneurial willingness to invest, while
businesses adopting risk-averse strategies experienced further decline.
Herding, where firms mimic others’ conservative approaches, also
contributed to reduced investment activities.
4. Conclusion and Implications
The ongoing crisis has negatively impacted SME investment and growth in
Sri Lanka. To survive, SMEs need improved investment confidence, risk
management, and resilience. Policy interventions must address political
and economic instabilities to support SME development.
