The determinants and impact of short-term business insurance on SMEs in South Africa

Master Thesis

2012

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University of Cape Town

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South Africa is a developing country riddled with high levels of unemployment. SMEs hire more than 50% of the workforce, and therefore adequate protection and support of these firms is crucial. The goal of this research is twofold: Firstly, to identify the determinants of business insurance take-up by SME owners. Secondly, to determine whether business insurance and firm performance are positively and significantly related. A probit model is used to determine the probability of business insurance take-up and a multiple regression is run to identify the effect of business insurance on firm performance. An IV is also run to control for potential endogeneity. Race, funeral and life insurance, education, personal income and size of the firm are key factors determining insurance take-up. Business insurance is found to be positive and statistically significant in both the OLS and IV regressions suggesting that business insurance improves the performance of SMEs.
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