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The Entrepreneurial Intention of Undergraduates in Sri Lankan Universities

Conference Paper · October 2011

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 ICBI 2011
Faculty of Commerce and Management Studies

The Entrepreneurial Intention of Undergraduates in Sri Lankan

Universities

Perera K. H.
Department of Commerce & Financial Management
Faculty of Commerce & Management Studies
University of Kelaniya, Sri Lanka
hasinihp@yahoo.com

Jayarathna L.C.H.
Department of Commerce & Financial Management
Faculty of Commerce & Management Studies
University of Kelaniya, Sri Lanka
Lakmali_j@yahoo.com

Gunarathna R.R.P.K.
Department of Commerce & Financial Management
Faculty of Commerce & Management Studies
University of Kelaniya, Sri Lanka
piyalusjp@yahoo.com

Abstract
This paper presents evidence of factors that affect the entrepreneurial intentions of
undergraduates of Sri Lankan universities. Two hundred undergraduates that represent five
faculties from the leading universities in Sri Lanka were selected using convenient judgment
sampling technique for the investigation. Questionnaire survey was made in collecting data.
Descriptive statistics and multiple regression technique were used in analyzing data. Results
reveal that social factors, psychological factors, economic factors and political and legal
factors are prominent factors that lead to become entrepreneurs. Further, it was found that
there is a less intention among undergraduates to be entrepreneurs compared to other
employments. Unwillingness to bear risk and funding problems were found to be as main
reasons for a less intention to become entrepreneur among undergraduates.
Key Words: Academic knowledge, Entrepreneurship, Intention, Preference, Social and
psychological dimensions

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Introduction
Since the beginning of the 1980s, the interest in entrepreneurship has been growing around
the world (Klofsten, 2000). The main factors contributing to this interest was the suffering of
industrialized countries from economic recession, high unemployment rates and fluctuation
in international trade cycles which most of these countries have not experienced before. This
situation has tended to increase the attention to the potential role of entrepreneurs (Garavan
and O’Cinneide, 1994) as one of the possible solutions to the problems face by the most of
the countries. According to Van pragg & Versloot (2007) entrepreneurship creates new
employment opportunities, produce innovations and increase productivity . Further, mounting
evidence suggests that regions with higher levels of firm creation will have greater economic
growth in subsequent periods (Davidsson et al., 2004). Moreover, new ventures typically
liberalizes the economy, promotes foreign investments, infuses new technology, and
increases economic standard of living (Kor, Mahoney, & Michael, 2007).
However, social scientists have not still agreed on the determinants of the decision to become
an entrepreneur. Early research in this regard has been focused on psychological
characteristics and traits of individuals as antecedents of new venture creation and factors of
venture success. For example, individuals’ need for achievement (McClelland, 1961), risk
taking propensity (Brockhaus, 1982), locus of control (Sexton & Bowman, 1983), tolerance
for ambiguity (Teoh & Foo, 1997) etc. were considered as essentials to new venture creation.
However, research based on these personal characteristics and demographic factors were
highly criticized by the later research of the discipline as they are not unique to entrepreneurs
but are common to even managers and general public (Gartner, 1989). Another stream of
research focused on intention models of entrepreneurship. According to Kolvereid (1996),
intention is regarded as a better predictor to be an entrepreneur than personal traits and role
models. Kruger (1993) claims that intentions are a robust predictor of the entrepreneurial
behavior of individuals. The entrepreneurial intention would be a previous and determinant
element towards performing entrepreneurial behaviors (Fayolle & Gailly, 2004; Kolvereid,
1996). In turn, the intention of carrying out a given behavior will depend on the person's
attitudes towards that behavior (Ajzen, 1991).

The main objective of this paper is to examine the factors that affect entrepreneurial intention
of university students. Previous research has focused only on entrepreneurial intentions of
students particular study area. In order to help fill this research gap, we investigate the

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entrepreneurial intentions of students covering broader groups of students who follow

different courses in the Sri Lankan university system.

Theory & hypotheses

Previous research have based on number of theories in relation to measuring the
entrepreneurial intention of undergraduates. The theory of planned behavior, grounded in
social psychology, is based on the premise that much human behavior is planned and is
therefore preceded by intention toward that behavior (Fishbein and Ajzen 1975). It asserts
that intention is an accurate predictor of planned behavior. Entrepreneurial behavior displays
these characteristics, which explains why several empirical studies of entrepreneurship have
applied the theory of planned behavior to the study of entrepreneurship from a psychological
perspective (Kolvereid and Isaksen 2006; Rotefoss and Kolveried 2005; Krueger and Carsrud
2000). According to Kreuger et al (2000), entrepreneurial activity can be predicted more
accurately by studying intention rather than personality traits, demographic characteristics, or
situational factors.
Most of the researches assume the existence of interactions among three explanatory
elements as per the planned behavior. If we compare these explanatory variables with those
considered by Shapero & Sokol (1982), we can see that perceived feasibility quite well with
perceived behavioral control. On the other hand, the willingness to carry out entrepreneurial
behaviors (perceived desirability) could be understood as composed by the personal attitude
and perceived social norms. In this sense, it may be remembered that Shapero & Sokol
(1982) considered desirability as a result of social and cultural influences. Further a greater
knowledge of the entrepreneurial environment will surely contribute to more realistic
perceptions about the entrepreneurial activity and would help identify adequate role models.
This latter element would have an influence on perceived feasibility and possibly on
desirability as well (Scherer et al., 1991).
Access to capital is obviously one of the typical obstacles to the start-up of new businesses,
not least in developing economies with weak credit and venture capital institutions. Several
empirical studies have concluded that the lack of access to capital and credit schemes and
the constraints of financial systems are regarded by potential entrepreneurs as main
hindrances to business innovation and success in developing economies (Marsden, 1992;
Meier & Pilgrim, 1994; Steel, 1994). Robinson (1993) found that informal sources of credit,
though with high interest rates, constitute very substantial contributions to business start-ups
in developing countries, where the capital to labour ratio is normally low and small amounts

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of capital may be sufficient for a business start-up. In developed economies with efficient
financial infrastructure, access to capital may represent similar restrictions to individuals’
perception of entrepreneurial options because of the high entry barrier ensuing from high
capital to labour ratios in most industries. As aforementioned, lack of capital is of problems
faced by Indonesian SMEs (Kementerian, 2004). A more recent study among Vietnamese
SMEs revealed that of internal limitations that hinder SMEs to succeed is capital shortage
(Swierczek & Ha, 2003). As such we developed a hypothesis to show the relationship
between the economic factors and the entrepreneurial intention.

H1 : There is a positive relationship between economic factors and entrepreneurial

intention of undergraduates

Some previous research has identified that although many of the students desire to run their
own businesses, their dreams are hindered by inadequate preparation; mainly their business
knowledge is insufficient for such kind of decision. Noel (1998) found that entrepreneurship
education is strongly related to entrepreneurial intention, with entrepreneurship majors
expressing higher intentions to start their own businesses. Another factor which has often
discussed is family business background. Self-employed parents affect the entrepreneurial
interest as well as the career choice of their children. Scott and Twomey (1988) reported that
students whose parents owned a small business demonstrated the highest preference for self-
employment and the lowest for employment in a large business. Brown (1989) also observed
a similar phenomenon in the UK when conducting a training program to assist
undergraduates in starting their own business. He found that 38% of the pre-selected students
(who are very interested in starting own business) had fathers with their own businesses. On
the other hand, Brenner et al (1991) found the influence of parental role on entrepreneurship
propensity of U.S. business school undergraduates was insignificant. Ghazali et al. (1995)
reported a similar observation on the self-employment choice of graduates in Singapore. The
most detailed analysis so far is the study by Matthews and Moser (1996) that used
longitudinal investigation for US graduates. They found the family background factor to be
significant in the self- employment decision of individuals. At the same time, individuals’
prior exposure to entrepreneurship in practice, both direct and indirect through their family
background in business, is significantly linked to their attitudes, norms, and perceived
behavioral control regarding entrepreneurship. On the other hand, a prior research has found
that in Singapore many self employed persons are small store owners and may not be very
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wealthy. As such we developed a hypothesis to show the relationship between the social
factors and the entrepreneurial intention.

H2 : There is a positive relationship between social factors and entrepreneurial

intention of undergraduates.

A large number of studies on qualitative aspects of entrepreneurs have focused on the

psychological characteristics and personality traits which differentiate both successful
entrepreneurs from unsuccessful entrepreneurs. Here we mainly focused the psychological
factor into Attitudes and Believes and Goals of individuals. Previous researches have
demonstrated that individuals do consider risk, independence and income when evaluating
alternative career options on the point of entrepreneurship. Further, they have found that the
intention to be an entrepreneur is stronger for those with more positive attitudes to risk and
independence. That is, the higher the individual’s tolerance for risk, and the more-positive
their attitude to decision-making autonomy, the Stronger is their stated intention to be an
entrepreneur.
Douglas and Shepherd (2002) has substantiated that – those with a higher entrepreneurial
intention are associated with a “more positive” attitude toward risk (i.e., are less risk averse),
and independence (i.e., are more independence preferring). Thus, high entrepreneurial
intention is found among those people who gain less disutility from risk and more utility (or
less disutility) from independence.
Also Douglas and Shepherd (2002) have confirmed that the person with the more-positive
attitude to independence will “make the jump” to self-employment more readily, since the
availability of sufficiently remunerative opportunities are more likely to be forthcoming for
that person (assuming a distribution of income over self-employment opportunities).
Conversely, the person with a less-positive attitude to independence needs to await (less-
common) more-remunerative self-employment opportunities, other things being equal. As
such we developed a hypothesis to show the relationship between the psychological factors
and the entrepreneurial intention.

H3 : There is a positive relationship between psychological factors and

entrepreneurial intention of undergraduates.

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The research on Entrepreneurial Intention: Triggers and Barriers to New Venture Creations
in Singapore; mentions that the pervasive influence of the government in the economy
through its vast network of government-led corporations (GLCs) and the risk-adverse
propensity of Singaporeans have been widely acknowledged as the two main contributors to
a lack of entrepreneurial culture in the city state. Many governments in the world (Chaston,
1992; Mulhern, 1996; Patrianila, 2003) have been paying a more attention to SME
development in order to strengthen national economy. Indonesian government, through
Ministry for Cooperative and Small- and Medium-sized Enterprises have launched many
programs (e.g. giving financial assistance) dedicated to SME development (Kementerian,
2003). The programs were proven to be significant in Indonesian SMEs development
(Kementerian, 2004). In short, government support is of necessary condition to foster SMEs
development. Government regulations are identified by Reynolds and Lancaster (2001) to be
one of the top problems faced UK SMEs. In addition to lack of financial support as above
mentioned, lack of institutional support was of hindrances of SME development (Mead &
Liedholm, 1998; Swierczek & Ha, 2003). As such we developed a hypothesis to show the
relationship between the political and legal factors and the entrepreneurial intention.

H4 : There is a positive relationship between political and legal factors and

entrepreneurial intention of undergraduates.

Rapid changes in technology should be responded by the individuals to find alternative ways
to sustain their competitive advantage by deploying new process and new growth methods in
their new businesses. Technology may play an important role in this respect. In this context,
technology has a close relationship with improvement of production process. Previous study
has revealed that lack of equipment and outdated technology are among hindrances of SME
development (Swierczek& Ha, 2003). In their study in US, Gundry, Kickul, Welsch, and
Posig (2003) disclosed that technological change innovations had significant relationship
with market growth. A study in Ireland unearthed that technological posture, automation, and
process innovation were significantly linked to satisfaction on return on investment (ROI).
Even in a highly technical industry it would seem that this knowledge is more important. As
such we developed a hypothesis to show the relationship between the technological factors
and the entrepreneurial intention.
H5 : There is a positive relationship between technological factors and
entrepreneurial intention of undergraduates.
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Conceptual Framework

Economic Factors
Fund Availability

Market Opportunities

Economic Stability

Infrastructure

Social Factors

Family Background

Education

Social Status

Entrepreneurial

Psychological Factors Intention

Attitudes and
Believes

Goals

Political & Legal Factors

Government Rules
and Regulations

Methodology
Political Stability
Sampling Plan
Technological Factors

The population of interest is all the undergraduates studying in Sri Lankan universities. As
for the sample of the study selected only 120 undergraduates and limiting to five faculties in
Sri Lankan university system based on random sampling technique.

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Faculty Frequency Percentage

Commerce and Management Studies 28 23.3

Science 24 20.0

Medical 24 20.0

Humanity 24 20.0

Social Science 20 16.7

Total 120 100.0

Table 1

Data Collection

Questionnaire survey was used as the primary source of data collection. To ensure the
validity of the questionnaire, a pilot survey was conducted by interviewing 10 selected
respondents from the sample.

Measures

A structured questionnaire was distributed among the selected sample. Response options
included five point Likert scales (strongly agree to strongly disagree) and the items used in
the questionnaire are listed below.

Entrepreneurial intention –

The following three questions in the questionnaire addressed the entrepreneurial intention.

 Undergraduates must stabilize first before stepping into a new business

 If I have the will power, I don’t want any support from a third party and I can
stand by my own.

 I do not want to be an entrepreneur.

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Economic Factors –

Questions were asked to cover the attitudes on fund availability, market opportunities,
economic stability and infrastructure of the respondents.

 I have enough funds to start a new business.

 There are enough infrastructure facilities available in the country to start a new
business.

 There are plenty of opportunities available in the Sri Lankan market for new
products and services.

 Current economic situation (Inflation, Interest rates, Employment rate, Budget

deficit, Taxes) in the country is helpful for new businesses.

Social Factors –

Questions were asked to cover the attitudes on impact of Family background, education and
social status of the respondents.

 If any of my family members are engaged in a business by his/her own, It will

help me a lot to start a new business.

 An undergraduate’s educational level is highly affecting to his/her ability of

starting a new business.

 I want to be an entrepreneur since they are highly recognized by the society.

Psychological Factors –

The following questions addressed the Attitudes & Believes and Goals of the respondents.

 If I start a new business, I will be independent and can do my work without the
intervention of other parties.

 The reason I don’t like to start a new business is the risk.

 Retirement benefits/fixed salary & job safety in other jobs are the factors which
caused more for not being an entrepreneur.

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Political and Legal Factors –

Through this we tried to measure the attitudes on Government rules and regulations and
political stability.

 Government must encourage the entrepreneurs by granting tax concessions,

subsidies, training and workshops on the subject matter.

 Under current political situation in the country it is very difficult to start a new
business.

Technological Factors –

Through this we have measured the impact of technological knowhow and technological
factors on entrepreneurial intention.

 Technological knowhow relating to the new technological development is an

important factor affecting to the entrepreneurial intention.

Results and Discussion

Descriptive Statistics
Std.
N Minimum Maximum Mean Deviation Variance

Entrepreneurial
120 1.67 5.00 3.8444 .94571 .894
Intention

According to the research results, it was found that there is a high entrepreneurial intention
among undergraduates in Sri Lankan universities. Further it was found that girls are more
reluctant to enter in to new businesses compared to boys (Table 2)
Mean

Male Female

Entrepreneurial
4.07 3.55
Intention

Table 2

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As per the table (Table 3) below, Tamils are more interested in entering into new businesses
whereas Sinhalese people are a bit backward in stepping in to businesses.

Mean

Muslim Sinhala Tamil

Entrepreneurial
3.70 3.62 4.59
Intention

Table 3
According to the Table 4, it was found that third and final year students’ entrepreneurial
intention is somewhat higher than the first and second year students. This has occurred due to
the increasing awareness of third and final year students on the subject matter. Further, the
educational level of undergraduates has an impact on the entrepreneurial intention. This is
depicted below in Table 5. When students are more educated they try to be independent and
keen in starting new businesses.

Mean

First Year Second Year Third Year Final Year

Entrepreneurial
3.84 3.53 4.00 4.00
Intention

Table 4

Entrepreneurial
Intention
Education Level

Mean

Undergraduate 3.76

Undergraduate + Professional
3.83
Qualifications

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Entrepreneurial
Intention
Education Level

Mean

Undergraduate 3.76

Undergraduate + Professional
3.83
Qualifications

Undergraduate + Professional + IT
4.24
Courses

Table 5

Correlation Coefficients
Standardized
Variable Coefficients

Economic Factors .356

Social Factors .333

Psychological Factors .244

Political Factors .272

Technological factors .023

Table 6

Multiple regressions were calculated for the independent variables, taking Entrepreneurial
intention as the dependent variable. As calculated above, the variables have a positive weak
relationship towards the Entrepreneurial intention. Among those, political factors (0.356) and
social factors (0.333) have a greater impact on the decision.

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Entrepreneurial Intention
Standardized
Partial
Pearson Correlation Coefficients
Correlation
(Beta)
Economic factors - 0.356 -0.055 0.064
Social Factors - 0.333 -0.246 0.230
Psychological Factors - 0.244 -0.111 0.110
Political Factors - 0.272 -0.297 0.268
Technological Factors 0.023 0.278 0.282
N 120
Table 07

Model Summary ANOVA(b)

Adjusted R
R R Square Sig.
Square
R Square
F Change df1
Change .000(a)
.542(a) 0.294 0.263
Table 08
According to Table 08, there is a significant relationship between all the independent
variables under the study and the dependent variable (0.000). However, it is a weak
relationship as per the figures in the model summery.

1. Entrepreneurial intention and economic factors

H0: There is no significant impact on entrepreneurial intention from economic factors, is
rejected since the beta value (0.064) is less than 0.5.Therefore economic factors (fund
availability, infrastructure facilities, market opportunities, current economic situation in the
country, resource availability) have a significant impact on the entrepreneurial intention of
undergraduates and it records the highest impact compared to other independent variables
(Partial correlation -0.055). Refer Table 7.

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2. Entrepreneurial intention and social factors

H0: There is no significant impact on entrepreneurial intention from social factors, is rejected
since the beta value (0.230) is less than 0.5.Therefore Social factors (social recognition,
family background, education level, cultural environment, skills and knowledge level of the
respondent) have a significant impact on the entrepreneurial intention of undergraduates in
Sri Lankan universities. Refer Table 7

3. Entrepreneurial intention and psychological factors

H0: There is no significant impact on entrepreneurial intention from psychological factors, is
rejected since the beta value (0.110) is less than 0.5.Therefore psychological factors of
attitude regarding risk, independence, sharing of profits and losses, responsibility, retirement
benefits and job safety including any inherited attitudes (by gender, nationality) have a
significant impact on the entrepreneurial intention of undergraduates as shown in the Table 7
above.

4. Entrepreneurial intention and political factors

H0: There is no significant impact on entrepreneurial intention from political and legal
factors, is rejected since the beta value (0.268) is less than 0.5.It was found that political
factors such as government intervention by way of tax concessions, subsidies, training and
workshops, political stability have a significant impact on the entrepreneurial intention of
undergraduates. Refer Table 07.

5. Entrepreneurial intention and Technological factors

There is no significant impact on entrepreneurial intention from technological factors, is
rejected since the beta value (0.282) is less than 0.5 and there was a weak positive
relationship between the technological factors and the intention to become entrepreneurs
(Partial correlation 0.278). Refer Table 07.

Conclusion
Male undergraduates are more likely to enter into new businesses. That was because; males’
intentions are somewhat more contingent on perceptions of entrepreneurs’ societal
contribution, while females’ intentions are slightly more contingent on perceived know-how.
Further, Tamils are having more entrepreneurial intention. As per the pilot survey carried
out, it was evidenced that most of the Tamils are interested in starting even a small boutique
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by their own than working for another employer.

The analyses revealed that education was related significantly to business success. However
this seemed as a moderating variable since more operational explanations were needed to
link it with business success. Although many of the students desire to run their own
businesses, their dreams are hindered by inadequate preparation; mainly their business
knowledge is insufficient for such kind of decision. This is minimized with their education
level they acquire and as a result students who follow other courses in line with their degree
are more towards the self employment intention. It was found that third and final year
students’ entrepreneurial intention is somewhat higher than the first and second year
students. This has occurred due to the increasing awareness of third and final year students
on the subject matter.
Amongst the factors that affect on entrepreneurial intention, economic factors were
identified as the main decision criteria. Identifying market opportunities, access to market
and market stability was of problems faced by new entrants. Market development is,
therefore, crucial for preserving high growth in their businesses. Also access to initial capital
is obviously one of the typical obstacles which are faced by the individuals to the start-up of
new businesses. Initial capital requirement is as a result; represent restrictions to individuals’
perception of entrepreneurial options. Therefore the economic factors including above, and
the entrepreneurial intention of undergraduates showed a positive relationship. Further all
other factors included in our conceptual frame work, provides corroborative evidence to the
fact that they have a significant effect on the entrepreneurial intention of the undergraduates
in Sri Lankan universities.

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