The Role of Absorptive Capacity and Market Dynamism in Shaping the Firm’s Entrepreneurial Orientation

Abstract

ABSTRACT The aim of this paper is to fill the gap on how market dynamism affects the firm’s entrepreneurial orientation (EO), and the role of absorptive capacity in this relationship. In contrast to previous studies that propose a linear effect of environmental factors, the results from a sample of 292 Spanish firms in the agri-food industry show a curvilinear relationship (inverted U-shaped) between market dynamism and EO. The main contribution is to demonstrate how this initial relationship is flattened with a higher absorptive capacity, softening the negative effects of dynamism in its extreme values. Therefore, we demonstrate how a firm’s resources and capabilities can promote or prevent an entrepreneurial behaviour derived from the perceived market dynamism. Specifically, to operate successfully in a context of strong market dynamism through EO, firms should enhance their absorptive capacity, enabling them to cope more successfully with changing conditions in the environment.