Explicating the relationship of entrepreneurial orientation and firm performance: Underlying mechanisms in the context of an emerging market

Abstract

This research examines the mechanisms through which entrepreneurial orientation (EO) affects firm performance in an emerging market context. We argue that EO drives firms to develop the dynamic capabilities of absorptive capacity (ACAP) and boundary-spanning (BS), and that these capabilities enhance firm performance. Moreover, the effectiveness of these knowledge- and network-based dynamic capabilities in mediating the EO-performance relationship is contingent on the institutional conditions firms are exposed to. We test our hypotheses using multi-sourced data on Chinese high-tech firms in business-to-business (B2B) markets. Our results show that ACAP and BS mediate the positive effect of EO on firm performance, and that as the development of market-supporting institutions improves, the mediating effect of ACAP becomes stronger while that of BS weakens.