The Stevens Institute of Technology Wesley J. Howe Award for Excellence in Research on the Topic of Corporate Entrepreneurship
ASSESSING THE RELATIONSHIP BETWEEN ENTREPRENEURIAL ORIENTATION, THE EXTERNAL ENVIRONMENT, AND FIRM PERFORMANCE
Patrick
Kreiser, The University of Alabama
Louis Marino, The University of Alabama
K. Mark Weaver, Rowan University
This study utilized data from 1,671 firms in nine countries to assess the relationship between the three sub-dimensions of entrepreneurial orientation (EO), the external environment, and firm performance. The results indicate that innovation, proactiveness, and risk-taking exhibit differential relationships with firm performance. Innovative and proactive firm behaviors were positively associated with firm performance, while risk-taking displayed a U-shaped curvilinear relationship with performance. The results also suggest that environmental characteristics moderate the relationship between the sub-dimensions of EO and firm performance. It is hoped that these results will encourage managers and researchers to explore the unique role that innovation, proactiveness, and risk-taking play in determining firm performance.
The relationship between entrepreneurship and firm performance has received considerable attention in the organizational literature over the last several decades (Sandberg & Hofer, 1987) with scholars theorizing a positive relationship between entrepreneurial behaviors and organizational profitability and growth (Covin & Slevin, 1991; Lumpkin & Dess, 1996; Miller & Friesen, 1983). Indeed, recent studies indicate that increases in firm performance related to EO are sustainable over long periods of time (Wiklund, 1999), but that this relationship may be contingent on the environmental context in which the firm is operating (Lumpkin & Dess, 2001; Zahra, 1993; Zahra & Covin, 1995).
Noting the critical nature of this topic for managers and organizations, several scholars have called for additional research on the relationship between EO, the environment, and firm performance (Wiklund, 1999). Zahra (1993) claimed that although “there is consensus that the external environment is an important antecedent of corporate entrepreneurship, there has been little empirical research on the patterns of the specific associations between these two variables…It is also unclear how entrepreneurship influences company performance in different environments” (Zahra, 1993: 320). While Lumpkin and Dess (2001) explored the relationship between proactiveness and performance, few studies have examined the contributions that the other two sub-dimensions offer to firm performance. The paucity of academic inquiry in this area suggests “additional research should explore the same questions in the context of other EO dimensions such as risk taking and innovativeness” (Lumpkin & Dess, 2001: 446).
Covin and Slevin’s (1989) measure of EO, based on the earlier work of Khandwalla (1977) and Miller and Friesen (1982) is the most widely utilized operationalization of the construct in both the entrepreneurship and strategic management literatures. Covin and Slevin theorized that the three dimensions of EO, innovation, proactiveness, and risk-taking, acted together to “comprise a basic, unidimensional strategic orientation” and should be aggregated together when conducting research in the field of entrepreneurship (Covin & Slevin, 1989: 79). This operationalization has shown high levels of reliability and validity in numerous studies, but recent research suggests that the three sub-dimensions of EO may vary independently of one another in a given context (Kreiser, Marino, & Weaver, in press; Lumpkin & Dess, 1996). If this is indeed the case, then it is possible that the three sub-dimensions of EO will possess differential relationships with critical variables such as firm performance.
Thus, a strong need exists for empirical research assessing the relationship between the individual sub-dimensions of EO and firm performance. The primary goals of this study were to assess the unique relationships between innovation, proactiveness, risk-taking, and firm performance, as well as to determine the moderating impact of the external environment on this relationship. In order to achieve these objectives, three specific research questions were addressed in this study:
THE EO-PERFORMANCE RELATIONSHIP
Entrepreneurial organizations have been conceptualized as possessing three main characteristics, innovation, risk-taking, and proactiveness, that could be aggregated to assess a firm’s entrepreneurial orientation (Covin & Slevin, 1989; Miller, 1983; Miller & Friesen, 1982). Innovation is embodied by a strong organizational commitment to “engage in and support new ideas, novelty, experimentation, and creative processes that may result in new products, services or technological processes (Lumpkin & Dess, 1996: 142). Risk-taking is the “degree to which managers are willing to make large and risky resource commitments—i.e., those which have a reasonable chance of costly failure” (Miller & Friesen, 1978: 923). Proactiveness is an “opportunity-seeking, forward-looking perspective involving introducing new products or services ahead of the competition and acting in anticipation of future demand to create change and shape the environment” (Lumpkin & Dess, 2001: 431). However, it has been argued in the literature that future research on entrepreneurial orientation may benefit from considering innovation, proactiveness, and risk-taking to be unique sub-dimensions of the entrepreneurial orientation construct (Kreiser, Marino, & Weaver, in press; Lumpkin & Dess, 1996).
As three unique sub-dimensions, these constructs are able to vary independently of one another in a given context. Accordingly each sub-dimension has been shown to posses a differential relationship with organizational performance. For example, Begley and Boyd (1987) found that risk-taking had a curvilinear relationship with performance in entrepreneurial firms concluding that “risk-taking has a positive effect on ROA up to a point. Beyond that point, increases in risk-taking began to exert a negative effect on ROA” (Begley & Boyd, 1987: 89).
On the other hand, previous research suggests that high levels of innovation (Deshpande, Farley, & Webster, 1993; Zahra & Bogner, 2000) and proactiveness (Lumpkin & Dess, 2001; Miller & Friesen, 1983) lead to increased organizational performance. Zahra (1996) contended that innovative behaviors were critical to firm survival, arguing that “success in today’s competitive environment requires a company to pursue a coherent technology strategy to articulate its plans to develop, acquire, and deploy technological resources to achieve superior financial performance” (Zahra, 1996: 189). Lieberman and Montgomery (1988) argued that first-mover firms were able to utilize proactive behaviors to gain significant advantages over follower firms. They defined such first-mover advantages in terms of the ability of pioneering firms to earn higher economic profits through such advantages as technological leadership and increased buyer switching costs (Lieberman & Montgomery, 1988). Therefore, we hypothesize:
Hypothesis 1: The three sub-dimensions of entrepreneurial orientation (innovation, proactiveness, and risk-taking) are differentially related to firm performance.
Hypothesis 2a: Innovative and proactive firm behaviors will be positively related to firm performance.
Hypothesis 2b: Risk-taking will display a curvilinear relationship with firm performance. Firms exhibiting moderate levels of risk-taking will tend to outperform firms exhibiting either very high or very low levels of risk-taking.
CONTINGENCY RELATIONSHIPS: EO-ENVIRONMENT-PERFORMANCE
The relationship between the environment and strategy formation has received considerable attention in the entrepreneurship literature (Covin & Slevin, 1989; Miller & Friesen, 1983; Zahra, 1993). Specifically, the concepts of environmental dynamism and munificence have played a fundamental role in understanding the strategic decision making process that occurs within entrepreneurial organizations (Lumpkin & Dess, 2001; Miller & Friesen, 1982; Zahra, 1996). Environmental dynamism refers to the “rate of change and innovation in an industry as well as the uncertainty or predictability of the actions of competitors and customers” (Miller & Friesen, 1983: 222). Environmental munificence refers to the availability of resources and the amount of external opportunities that are present in a specific environmental setting (Dess & Beard, 1984; Zahra, 1993).
The three sub-dimensions of entrepreneurial orientation and key characteristics of the external environment may interact with one another in order to influence firm performance (Lumpkin & Dess, 2001). Specifically, environmental attributes such as dynamism and munificence may moderate the relationship between the three sub-dimensions of EO and performance. Figure 1 displays a model of the EO-environment-performance relationship.
Innovation and the Environment
Organizations operating in dynamic environments are more likely to display new product innovation than firms operating in stable environments (Miller, 1983; Miller, 1988; Zahra, 1993). According to Miller (1988), “product innovation is generally more prevalent and useful in dynamic environments…Without innovation, firms in such settings fall behind, losing market share and sales” (Miller, 1988: 284). Zahra (1996) found that environmental dynamism was positively associated with pioneering activities and radical product technologies in entrepreneurial firms. Zahra and Bogner (2000) argued that dynamic environments served to “encourage the development of radically new products and technologies in order to capture premium market segments, or preempt competitors’ entry” (Zahra & Bogner, 2000: 141). They found that firms in dynamic environments achieved the highest levels of performance by frequently developing radical new products and upgrading these products. Non-innovative firms often fall behind in dynamic environments, where consumer tastes and trends are quick to change. Thus, it is expected that new product innovation and the use of R&D strategies will be positively associated with firm performance in dynamic environments.
It is also likely that firms operating in munificent environments will be more innovative in their strategic orientation. Lumpkin (1996) claimed that “a munificent environment is one in which innovativeness is favored because resources are available to devote to technological development and the growth environment invites a proliferation of new products” (Lumpkin, 1996: 46). Zahra (1996) found that munificent environments acted to encourage R&D spending within firms, since firms operating in hostile environments “may be reluctant to invest heavily in developing new technologies because hostility erodes profit margins and reduces the resources available for innovation” (Zahra, 1996: 197).
Zahra and Bogner (2000) found that the introduction of radical new products was negatively associated with ROE in hostile environments and that R&D spending was negatively associated with market share in such settings. The negative relationship between innovation and hostility was “consistent with theoretical expectations that intense hostility in these markets might make aggressive gambling of new ventures’ limited financial resources by offering radically innovative products a poor strategic choice” (Zahra & Bogner, 2000: 165). On the other hand, firms in munificent environments will be able to acquire the resources necessary to invest in innovation and new product development. Thus, it is expected that innovative practices will be positively associated with firm performance in munificent environments.
Hypothesis 3a: Environmental dynamism will moderate the relationship between innovation and firm performance. Innovative firm behaviors will be more positively associated with firm performance in dynamic environments.
Hypothesis 3b: Environmental munificence will moderate the relationship between innovation and firm performance. Innovative firm behaviors will be more positively associated with firm performance in munificent environments.
Proactiveness and the Environment
There is also an intuitive link between the adoption of proactive firm behaviors and environmental dynamism. Dynamic environments create new opportunities for firms. Proactive strategies can allow firms to seize these opportunities and gain a competitive advantage (Zahra, 1991). Accordingly, Zahra (1996) found that dynamic environments acted to increase the evidence of pioneering activities in entrepreneurial firms. Similarly, Lumpkin and Dess (2001) found that “both sales growth and profitability are positively and significantly related to a proactiveness-dynamism link” (Lumpkin & Dess, 2001: 444). Thus, it is expected that proactive firm behaviors will be positively associated with performance in dynamic environments.
Munificent environments also encourage firms to act in a proactive manner. Miller and Friesen (1982) argued that munificent environments promote such behaviors since growing markets are characterized by a great deal of strategic opportunities. Proactive firms are able to capitalize on these numerous opportunities and build a strategic advantage in relation to their competition (Lieberman & Montgomery, 1988). Alternately, Lumpkin and Dess (2001) argued that hostile environmental conditions would force organizations to abandon proactive behaviors, in order to preserve their limited resources. Such a “conservative use of resources is antithetical to the important role of experimentation and discovery inherent in proactiveness” (Lumpkin & Dess, 2001: 437). Thus, it is expected that proactive behaviors will be more positively related to firm performance in munificent environments.
Hypothesis 4a: Environmental dynamism will moderate the relationship between proactiveness and firm performance. Proactive firm behaviors will be more positively associated with firm performance in dynamic environments.
Hypothesis 4b: Environmental munificence will moderate the relationship between proactiveness and firm performance. Proactive firm behaviors will be more positively associated with firm performance in munificent environments.
Risk-Taking and the Environment
In dynamic environments organizations need to make bold, risky strategic decisions in order to cope with the constant state of change encountered in these settings (Khandwalla, 1977). Organizations that do not take risks in dynamic environments will lose market share and will not be able to maintain a strong industry standing relative to more aggressive competitors (Covin & Slevin, 1991; Miller, 1983). Thus, it is expected that organizational risk-taking will be positively associated with firm performance in dynamic environments.
Risk-taking will also offer the possiblity for high payoffs in munificent environments. Lumpkin (1996) argued that risk-taking would be positively associated with environmental munificence since “it is an environment that invites new entry and supports development aimed at fulfilling unmet demand” (Lumpkin, 1996: 46). It is also likely that excessively hostile environments will discourage organizations from taking risks that they consider unnecessary (Zahra & Garvis, 2000). These arguments are consistent with prior research claiming that even risk-taking managers would be discouraged from taking large scale risks in extremely uncertain environments (Smart & Vertinksy, 1984). Alternately, firms operating in munificent environments will be able to afford taking risks, since resources are readily available in such hospitable environments. Therefore, it is expected that risk-taking will be positively associated with organizational performance in munificent environments.
Hypothesis 5a: Environmental dynamism will moderate the relationship between risk-taking and firm performance. Organizational risk-taking will be more positively associated with firm performance in dynamic environments.
Hypothesis 5b: Environmental munificence will moderate the relationship between risk-taking and firm performance. Organizational risk-taking will be more positively associated with firm performance in munificent environments.
Sample
The data utilized in this study were collected from Small-to-Medium Sized Enterprises (SMEs) in nine countries: Australia, Costa Rica, Finland, Greece, Indonesia, Mexico, the Netherlands, Norway, and Sweden. Organizations in these nine countries were randomly selected through the use of national online databases, business directories, and membership lists of trade associations. In accordance with both United States and European classification standards, we defined SMEs as firms consisting of between six and 500 employees. Therefore, the sample utilized in these analyses was limited to firms falling within that size range.
Consistent with previous research on this topic, surveys were addressed to either the owner or general manager of each organization (Lumpkin & Dess, 1996; Miller, 1983). The survey instrument was developed in English and then underwent a “double back-translation” process. After the finalized design was agreed upon, surveys were sent to firms in the selected countries. The first country included in the sample was Norway in 1995. Additional countries were added over the following three years. Mail surveys were sent to 973 firms in Australia, 435 firms in Costa Rica, 400 firms in Finland, 400 firms in Greece, 890 firms in Indonesia, 300 firms in the Netherlands, 2,465 firms in Norway, and 600 firms in Sweden. An on-site interview process was utilized in Mexico, with 650 total interviews being conducted.
The data collection process resulted in 206 returned mail surveys from Australian SMEs (21.2% response rate), 87 Costa Rican SMEs (20.0%), 121 Finnish SMEs (30.2%), 255 Greek SMEs (63.7%), 285 Indonesian SMEs (32.0%), 131 Dutch SMEs (43.7%), 433 Norwegian SMEs (17.6%), and 180 Swedish SMEs (30%). The on-site interview process resulted in responses from 366 Mexican SMEs (56.4%). The overall response rate for this study was 29.0% (2064/7113). Of the 2,064 completed surveys, 393 did not meet the requirements regarding firm size. Therefore, these firms were eliminated from the analyses. The total sample utilized in this study consisted of 1,671 firms in nine countries: Australia (86 firms), Costa Rica (64 firms), Finland (121 firms), Greece (199 firms), Indonesia (252 firms), Mexico (275 firms), the Netherlands (121 firms), Norway (391 firms), and Sweden (162 firms).
Measures
Entrepreneurial Orientation. The three dimensions of entrepreneurial orientation were assessed using eight of the items from the original Covin and Slevin measure (1989). All eight items were measured using a five-point Likert scale. Three items were utilized to measure innovation (alpha =.64), three items were used to measure proactiveness (alpha =.68), and two items were intended to measure risk-taking (alpha =.74).
The External Environment. Environmental dynamism was measured using a five-item, five-point scale (alpha =.70) and contained items measuring the rate of product obsolescence, the predictability of competitor’s actions, the predictability of demand and consumer tastes, and the rate of technological change within the industry, as well as how often the firm had to change its marketing practices (Khandwalla, 1977; Miller and Friesen, 1982). Environmental munificence, taken from an environmental scale developed by Schultz, Slevin, and Covin (1995), was measured using a four-item, five-point scale (alpha =.77). The scale contained items measuring the current profitability of the industry, the projected long-term (five years or more) profitability of the industry, the market growth rate in the industry over the last three years, and the projected long-term market growth rate (five years or more) for the industry.
Firm Performance. Firm performance was measured using a six-item, five-point scale developed by Gupta and Govindarajan (1984). Numerous researchers have suggested that multiple dimensions of performance should be utilized in organizational research (Lumpkin & Dess, 2001; Venkatraman & Ramanujam, 1986). Therefore, we utilized three separate measures of firm performance: sales level, sales growth, and gross profit. Measuring both growth and profitability allow for a broader, more comprehensive conceptualization of firm performance (Murphy, Trailer, & Hill, 1996). In measuring these dimensions of performance, a weighted measure was calculated by asking respondents to indicate the “degree of importance” and the “current level of satisfaction” they had with their firms’ sales level, sales growth, and gross profit and then multiplying the importance and satisfaction scores together.
Control Variables. Two control variables were utilized in the analyses. First, the type of industry that the firms competed in was considered as industry setting has been shown to exert an influence on the entrepreneurial process in past research (Covin & Slevin, 1991; Sandberg & Hofer, 1987). Thirteen different industry types, classified according to Standard Industrial Classification (SIC) categories, were coded and controlled for in order to measure industry-level effects. The second control variable utilized in the analyses was firm size measured as total number of employees within the organization to account for potential relationships between firm size and strategic behavior in entrepreneurial organizations (Chen & Hambrick, 1995).
Table 1 reports the means, standard deviations, and correlations for the independent and dependent variables utilized in the analyses.
To account for the possibility that common method variance might bias the results the data were subjected to a Harman one-factor test (Podsakoff & Organ, 1986). In this analysis, six factors with eigenvalues greater than one emerged with none of the single factors explaining over twenty percent of the total variance in the data. Therefore, it appears common method variance did not pose a significant threat to this research.
The first two hypotheses examined the differential relationship between the three sub-dimensions of entrepreneurial orientation and firm performance and were tested using multiple regression models created with each of the three performance measures (sales level, sales growth, and gross profit) utilized as a dependent variable. The full models included terms for innovation, proactiveness, risk-taking, and risk-taking-squared, as well as the two control variables (industry type and firm size). The squared term was included to test for the proposed curvilinear relationship between risk-taking and firm performance (hypothesis 2b). If both the standard risk-taking measure and the squared risk-taking measure were significant in the full model, this would provide support for the hypothesized curvilinear relationship (Miller & Friesen, 1982).
Table 2, Table 3, and Table 4 present the full regression results for each model using the three dependent variables (sales level, sales growth, and gross profit). Hypothesis 2a posited a positive relationship between innovation, proactiveness, and firm performance. Innovation was significantly and positively related to sales growth (beta =.118, p-value=.022), while proactiveness was significantly and positively related to sales level (beta =.166, p-value=.004), sales growth (beta =.165, p-value=.004), and gross profit (beta =.235, p-value=.000). Thus, hypothesis 2a was supported. Hypothesis 2b posited a curvilinear relationship between risk-taking and firm performance. A curvilinear relationship was found to exist between risk-taking and firm performance in two of the three models. Risk-taking (beta =-.894, p-value=.005) and risk-taking-squared (beta =.07, p-value=.012) were significant predictors of sales level, as well as sales growth (risk-taking: beta =-.907, p-value=.004, risk-taking-squared: beta =.08, p-value=.002). While the curvilinear relationship between risk-taking and performance was supported, it was in the opposite direction as hypothesized. The results suggest a “U-shaped” relationship between risk-taking and performance, where moderate levels of risk-taking actually decrease levels of performance. Thus, hypothesis 2b was only partially supported. Overall, these findings suggest that innovation and proactiveness are positively related to firm performance, while risk-taking has a U-shaped curvilinear relationship with performance. Thus, hypothesis 1 (that the sub-dimensions of entrepreneurial orientation have differential relationships with firm performance) was also supported.
Hypotheses 3a and 3b considered the moderating impact of environmental dynamism and munificence on the innovation-performance link. Three regression models (one with each of the three performance measures as dependent variable) were run to test these two hypotheses. Table 2, Table 3, and Table 4 display the results of the moderated regression models testing hypotheses 3a and 3b. The innovation-dynamism link was found to be significantly and positively related to sales level (beta =.023, p-value=.029), sales growth (beta =.023, p-value=.029), and gross profits (beta =.021, p-value=.056). Thus, hypothesis 3a (that innovation will be more positively related to firm performance in dynamic environments) was strongly supported. Hypothesis 3b posited that innovation would be more positively related to performance in munificent environments. The innovation-munificence link was significantly related to sales growth (beta =.023, p-value=.020). However, the innovation-munificence link was non-significant in the other two models testing sales level and gross profit. Therefore, hypothesis 3b was only partially supported.
Hypotheses 4a and 4b tested for the moderating impact of environmental characteristics on the proactiveness-performance link. Three regression models (one with each of the three performance measures as the dependent variable) were run to test these two hypotheses. Tables 2, 3, and 4 display the results of the moderated regression models testing hypotheses 4a and 4b. Hypotheses 4a stated that proactiveness would be more positively related to firm performance in dynamic environments. The proactiveness-dynamism link was found to have a significant, positive relationship with gross profitability (beta =.020, p-value=.081). However, this link was not found to significantly predict either sales level or sales growth. Thus, hypothesis 4a was partially supported. Hypothesis 4b theorized that proactiveness would be more positively related to firm performance in munificent environments. The proactiveness-munificence link was found to have a significant, positive relationship with both sales level (beta =.026, p-value=.041) and sales growth (beta =.049, p-value=.000). Thus, hypothesis 4b was supported.
Hypotheses 5a and 5b posited that risk-taking would be more positively related to firm performance in dynamic and munificent environments. Three regression models (one with each of the three performance measures as the dependent variable) were run to test these two hypotheses. Tables 2, 3, and 4 display the results of the moderated regression models testing hypotheses 5a and 5b. The relationship between risk-taking and dynamism was found to be a significant predictor of sales growth (beta =.032, p-value=.033), but a non-significant predictor of sales level and gross profit. Thus, hypothesis 5a was partially supported. The risk taking-munificence link was found to be significantly and positively related to sales level (beta =.035, p-value=.060) and sales growth (beta =.060, p-value=.001). Thus, hypothesis 5b was supported.
This study extends the existing literature on the EO-performance relationship in several important ways. First, these results suggest that a differential relationship exists between the three sub-dimensions of entrepreneurial orientation and firm performance. Thus, each of these sub-dimensions appears to make a distinct contribution to an organization’s overall level of performance. Second, environmental factors displayed a strong impact on firm performance, not only through their direct effect on performance, but also due to their moderating impact on the relationship between the sub-dimensions of EO and performance. While previous empirical findings suggest that the environment may moderate the EO-performance relationship (Covin & Slevin, 1989; Zahra, 1993), few studies have addressed this topic by examining each of the three sub-dimensions individually. It is hoped that these results will encourage future researchers to explore the unique role that innovation, proactiveness, and risk-taking play in determining firm performance.
The results of this study strongly suggest that the three sub-dimensions of entrepreneurial orientation are differentially related to various components of firm performance. Innovative behaviors displayed a positive relationship with sales growth, while proactive firm behaviors were found to positively contribute to sales level, sales growth, and gross profit. Risk-taking was found to possess a “U-shaped” curvilinear relationship with sales level and sales growth. This suggests that firms on either extreme of the risk-taking spectrum will tend to outperform firms that display more moderate levels of risk-taking. Given that previous research has found entrepreneurs to be moderate in their willingness to take risks (McClleland, 1960), these findings question the fiscal sense of such a disposition. One possible explanation for this relationship is that firms unwilling to take excessive risks often suffer from indecisiveness and hesitation. As these firms become more decisive and willing to take risks, it appears that their performance begins to elevate. The literature on first-mover advantages (Lieberman & Montgomery, 1988) may help provide further explanation for this unexpected yet intriguing research finding.
This research also provides further empirical support for the moderating role of environmental characteristics in the EO-performance relationship. Innovation was found to be more positively associated with sales level, sales growth, and gross profit in dynamic environments, and more positively associated with sales growth in munificent environments. Proactiveness was found to be more positively associated with gross profit in dynamic environments, and more positively associated with sales level and sales growth in munificent environments. Risk-taking was found to be more positively associated with sales growth in dynamic environments, and more positively associated with sales level and sales growth in munificent environments. Unlike previous literature suggesting that firms in hostile environmental contexts should adopt an entrepreneurial posture (Covin & Slevin, 1989), these results indicate that an “entrepreneurial orientation” may be most conducive to firm performance in dynamic and munificent environments.
The results of this paper have important research implications. While much of the previous research on this topic has utilized aggregated measures of entrepreneurial orientation, it is clear that the sub-dimensions of EO exhibit differential relationships with firm performance. Future research should consider the unique contributions that innovation, proactiveness, and risk-taking offer to firm profitability and growth when attempting to explain and predict firm performance. Researchers are also likely to benefit from exploring the impact of entrepreneurial orientation on different measures of performance, as this research suggests that different configurations of EO may be more likely to promote particular dimensions of firm performance (i.e., profitability or growth). Finally, researchers need to account for the moderating impact of environmental characteristics when researching the topic of firm performance. This study provides important insights into the particular environmental characteristics that encourage firm performance, as well as the manner in which these characteristics interact with the sub-dimensions of EO. Therefore, researchers need to be cognizant of possible environmental influences when creating models designed to test entrepreneurial behavior and firm performance.
In conclusion, this study has provided important insights into the differential relationship between the three sub-dimensions of entrepreneurial orientation and firm performance. Innovative and proactive firm behaviors were found to contribute positively to organizational performance, while risk-taking displayed a “U-shaped” relationship with performance. Further, the results of this research provided support for the moderating role of the external environment in the EO-performance relationship. Our findings suggest that, in order for entrepreneurial firms to maximize their overall performance, they should match their level of innovative, proactive, and risk-taking behaviors with the characteristics of their external environment. Thus, it is of critical importance for both managers and researchers to understand the complex nature of the relationship between entrepreneurial behavior and firm performance when attempting to predict and explain the success of small-to-medium sized organizations.
CONTACT: Patrick M. Kreiser, Box 870225, The University of Alabama, Tuscaloosa, AL 35487-0225; (T) 205-462-0602; (F) 205-348-6695; kreis001@bama.ua.edu
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