Causation, Effectuation, and Innovation Performance: The Mediating Role of Absorptive Capacity

Abstract

This essay 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. In addition, industry growth negatively moderates the path between causation and absorptive capacity. We contribute to theory on entrepreneurship—in particular to literature on effectuation and knowledge spillover—and dynamic capabilities theory by showing that causation and effectuation have different effects on the creation of innovation performance. Furthermore, we establish the understanding that absorptive capacity enhances the influence of both decision-making approaches on innovation performance. In particular, absorptive capacity is a necessary precondition for an applied causal approach to create innovation performance. When an effectual approach has been applied, absorptive capacity can be considered a supportive precondition. The respective managerial implications as well as limitations and future research avenues are discussed.