Academic journal article Entrepreneurship: Theory and Practice

Entrepreneurial Orientation and Growth of SMEs: A Causal Model

Academic journal article Entrepreneurship: Theory and Practice

Entrepreneurial Orientation and Growth of SMEs: A Causal Model

Article excerpt

The literature existing on entrepreneurship implicitly assumes that entrepreneurial orientation (EO) and growth orientation are positively related with each other. However, few studies, whether theoretical or empirical, analyze such relation in an explicit manner. Instead, most previous works have focused on the EO-performance relation, even though growth and profitability do not always correlate positively. This work has been carried out on a sample of 434 SMEs, and contributes two novelties with regard to previous research: (1) the analysis focuses on the EO-growth relation; and (2) it uses a flexible method (Partial Least Squares) which allows the study of several simultaneous relationships. The results reveal the complexity of the relationships between EO, strategy, environment, resources and growth.

Introduction

Recent years have brought an increased interest in better understanding the phenomenon of firm growth (Brown, Davidsson, & Wildund, 2001; Correa, Acosta, Gonzalez, & Medina, 2003; Littunen & Tohmo, 2003; Delmar, Davidsson, & Gartner, 2003). There are many reasons for this expanding interest. From the economic and social point of view, there is the fact that firms that grow more are the ones that generate more new jobs (Birch, Haggerty, & Parsons, 1994; Littunen & Tohmo, 2003). Also, from the academic point of view, growth constitutes one of the least studied dimensions of performance within the field of management, as compared to other variables such as profitability (Porter, 1980, 1985; Rumelt, 1991).

High growth tends to be associated with a firm's entrepreneurial behavior (Brown et al., 2001; Stevenson & Jarillo, 1990). Thus, growth tends to be considered a logical consequence of innovative, proactive and risk-taking behavior on the part of the firm, as these are the dimensions which define an entrepreneurial orientation (EO). The relationship between the EO of the firm and its performance has been thoroughly investigated, from both a conceptual (Covin & Slevin, 1991; Lumpkin & Dess, 1996) and an empirical point of view (Covin & Slevin, 1989; Lumpkin & Dess, 2001; Wiklund & Shepherd, 2005). However, many questions remain unanswered. The existing literature has two important limitations.

First of all, the empirical research undertaken thus far has examined the relationship between EO and firm performance, despite the multidimensionality of the latter concept. The performance averages combine indicators associated with profitability and growth, although both of these dimensions are sometimes contradictory (Delmar et al., 2002). Therefore, it is worthwhile to ask the following question: Is there a positive relation between the firm's EO and its growth? Second, most authors emphasize the complexity of the relations between EO and performance (Wiklund & Shepherd, 2005). Such complexity involves a confluence of direct, mediating, and moderating relations among external and internal dimensions. Thus, the following question arises: Which variables influence such relation? What kind of effect do they have?

This study seeks to take an important step toward an overall understanding of the influence of a firm's EO on its growth, making progress in the two directions discussed earlier. The analysis concentrates only on the study of growth and does not examine other dimensions of firm performance. The design of the research project also attempts to capture the complexity of the phenomenon being studied. Instead of analysis methodologies based on regression, we have used a structural-equations model of an exploratory nature. Said model attempts to integrate, through causal relations, the influence of the environment, firm resources, and firm strategy on the relation between EO and the growth of the firm.

The article is structured as follows: After the introduction is a section that summarizes the most relevant literature upon which the conceptual model and hypotheses are based. …

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