Entrepreneurial Orientation, Innovation and SME Performance: A Study of SMEs in Malaysia using PLS-SEM

Abstract

Objective - Despite extensive research on Entrepreneurial Orientation (EO) and innovation and performance, there are still limited resources on how these areas benefit Small and Medium Enterprises (SMEs). There are various financial aids and support services that are provided to SMEs. Despite this, SMEs still tend to perform quite low. This paper aims to identify the link between EO and SME performance using innovation as a mediator. Methodology/Technique – To achieve this objective, a quantitative approach is used. Questionnaires are collected from 285 SMEs in Peninsular Malaysia. Structural Equation Modelling (SEM) analysis is applied to test the hypotheses on the direct and indirect relationships between EO and SME performance through innovation. Finding - The findings of this study show that only two aspects of EO (innovativeness and proactiveness) have significant relationships with SME performance. Interestingly, all dimensions of EO have a direct impact on innovation. Further, innovation has a direct effect on SME performance and is a significant mediator between EO and SME performance. Novelty - These findings indicate that EO is a strong predictor of Innovation and SME performance. The discussion provided in this paper strengthens the body of knowledge on Entrepreneurship and acts as a benchmark for future studies on EO, Innovation and SME Performance. Type of Paper: Empirical. JEL Classification: M13, M19, L25. Keywords: Malaysia; Entrepreneurial Orientation; Innovation; SME Performance. Reference to this paper should be made as follows: Kee, D.M.H; Rahman, N.A. 2020. Entrepreneurial Orientation, Innovation and SME Performance: A Study of SME in Malaysia using PLS-SEM, Global J. Bus. Soc. Sci. Review 8(2): 73 – 80. https://doi.org/10.35609/gjbssr.2020.8.2(1)