Moderating effect of fuel subsidy removal on the relationship between entrepreneurial orientation and growth of small and medium enterprises in Nigeria

Abstract

This study examined the moderating effect of fuel subsidy removal on the relationship between entrepreneurial orientation and the growth of small and medium enterprises in Nigeria. The removal of the petrol subsidy in May 2023 raised the national average pump price from ₦238.11 to ₦545.83 per litre within a single month, and prices have remained above ₦1,000 per litre since late 2024, which makes the policy a durable alteration of the cost structure facing Nigerian enterprises rather than a transient shock. A quantitative survey design was adopted. Structured questionnaires were administered to a stratified random sample of small and medium enterprise owners and managers drawn from manufacturing, agriculture, retail, technology, transportation and service sectors, and 261 valid responses were analysed. Data were examined using descriptive statistics, Pearson correlation and fixed effects moderated regression, the specification having been confirmed by a Hausman test, χ 2 (5) = 18.47, p = 0.002. All study variables correlated positively with enterprise growth, with innovativeness recording the strongest association (r = 0.628, p < 0.01). In the regression models the direct effects of innovativeness (β = 0.112, p = 0.096) and risk taking (β = 0.094, p = 0.149) on growth were positive but did not attain conventional significance, whereas fuel subsidy removal exerted a significant negative direct effect (β = −0.271, p = 0.001). Both interaction terms were significant. The interaction between innovativeness and fuel subsidy removal was positive (β = 0.184, p = 0.011), indicating that innovative capability becomes more productive as cost pressure intensifies, while the interaction between risk taking and fuel subsidy removal was negative (β = −0.163, p = 0.019), indicating that exposure to uncertain commitments becomes more costly under the same conditions. Adding the interaction terms raised the explained variance from 0.441 to 0.641. The study concludes that entrepreneurial orientation is not uniformly beneficial under economic stress: the policy environment determines which entrepreneurial behaviours pay. It recommends that enterprise owners prioritise cost reducing innovation and tighten investment appraisal, and that government combine affordable finance with practical access to alternative energy for small firms.