Entrepreneurial personality and firm performance: the mediating role of risk propensity and perception in shaping MSME performance

Purpose The purpose of this study is to explore the relationship between entrepreneurs’ personality traits and firm performance in the Indian MSME sector, with a specific focus on the mediating roles of risk propensity and risk perception. It addresses a key gap in understanding how psychological factors influence performance in resource-constrained and uncertain business environments. Design/methodology/approach Using a quantitative research design, data was collected from 420 MSME entrepreneurs across India via a structured questionnaire. Standardised instruments measured personality traits (based on the Five-Factor Model), risk propensity, risk perception, and firm performance. Structural Equation Modelling (SEM) was employed to investigate both direct and indirect effects. Findings The results show that personality traits, particularly Openness to Experience, Conscientiousness, and Agreeableness, are significantly associated with firm performance. Risk propensity and risk perception were found to mediate this relationship partially. Risk propensity had a more substantial mediating effect than risk perception, suggesting that behavioural tendencies may be more impactful than cognitive evaluations in entrepreneurial decision-making. Originality/value This study advances Trait Activation Theory within an emerging economy context by introducing dual mediators–risk propensity and perception, into the personality–performance framework. It also offers a culturally grounded perspective on entrepreneurial psychology in Indian MSMEs, contributing to both theoretical understanding and practical interventions in entrepreneurship development.