Factors Affecting the Performance of Micro and Small Enterprises with the Mediating Role of Institutional Support Evidenced from Samara-Logia City Administration, Afar Region, Ethiopia

Abstract

Micro and small enterprises play a vital role in economic development, particularly in developing regions, yet several challenges often constrain their performance. This study investigates the key determinants of micro and small enterprises’ performance in the Samara Logia city administration in the Afar Region, with specific emphasis on the mediating role of institutional support. An explanatory research design was employed, and primary data were collected from 212 enterprises using a structured questionnaire measured on a five-point Likert scale. The sample was drawn through stratified and simple random sampling. Data analysis was conducted through structural equation modeling with Smart PLS version 4 to examine both direct and indirect relationships among the study variables. The findings reveal that managerial skills, technology factors, infrastructure availability, access to finance, and social factors are statistically significant and have a positive influence on the performance of enterprises. Moreover, these relationships are partially mediated by institutional support, highlighting its central role in enhancing enterprise outcomes. The structural model accounts for 69.9% of the variance in MSE performance and 64.8% of the variance in institutional support, while satisfying established criteria of reliability, validity, and collinearity. Based on these results, the study recommends that policymakers, institutions, and enterprise owners strengthen managerial skills, expand access to finance, improve infrastructure, encourage technological utilization, and leverage social networks while ensuring consistent and responsive institutional support to sustainably improve enterprise performance.