Absorptive Capacity, Decision-Making Approaches, and Innovation: Evidence from Fintechs and Biotechs

Abstract

This paper addresses the question how new ventures create innovation performance through the application of two entrepreneurial decision-making approaches, namely causation and effectuation, and the usage of absorptive capacity. We build a conceptual model and use partial least squares structural equation modeling in order to analyze survey data on 150 BioTechs and FinTechs operating in three European countries. Our results reveal that causation does not directly impact a firm’s innovation performance, but that this relationship is fully mediated by absorptive capacity. We further find effectuation to significantly influence innovation performance, while absorptive capacity partially mediates this relationship. We contribute to entrepreneurship theory—in particular to literature on effectuation and knowledge spillover—and the dynamic capabilities-based view by analyzing opposing effects of causal and effectual decision-making approaches on innovation performance. Furthermore, we establish the understanding that absorptive capacity enhances the impact of both causation and effectuation on innovation performance. In particular, absorptive capacity is necessarily needed if a causal approach has been applied; in case an effectual approach is used, absorptive capacity can be considered a supportive capability. The respective managerial implications as well as limitations and future research avenues are discussed.