Why does entrepreneurial orientation affect company performance?

Talis Putnins and Arnis Sauka
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Arnis Sauka: Stockholm School of Economics in Riga

Published Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: Research summary To better understand why entrepreneurial orientation (EO) is positively associated with company performance, we propose and test a reconceptualization of how the components of EO (risk-taking, innovativeness, proactiveness) combine in driving performance. Drawing on financial economics theory, our conceptualization highlights that all three components positively contribute to performance, but in different ways. Risk-taking has a direct positive relationship with performance, which can be understood through the risk–return tradeoff that is central in financial economics theory. The relationship between risk-taking and performance is conditional on the level of innovativeness and thus innovativeness contributes to performance through its effect on the type of risk-taking. Proactiveness contributes to performance through its positive effect on the level of risk-taking. Managerial summary This study analyzes three key drivers of company performance: risk-taking, innovativeness, and proactiveness. We show that constructive risk-taking is the central driver of company performance, mirroring the principle of risk and return in financial investment settings. Risk- taking that is associated with innovation has a particularly strong positive relationship with performance, consistent with innovation being a driver of growth and profitability. More proactive firms tend to take on more risk and thus also perform better than less proactive firms.

Keywords: conceptualization; entrepreneurial orientation; innovativeness; performance; proactiveness; risk-taking (search for similar items in EconPapers)
Pages: 25 pages
Date: 2020-01-01
New Economics Papers: this item is included in nep-bec and nep-sbm
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Citations: View citations in EconPapers (23)

Published in: Putninš, T. J. and Sauka, A., 2020, "Why does entrepreneurial orientation affect company performance?", Strategic Entrepreneurship Journal, 14(4), 711-735.

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