Description
With this detailed information in relation to entrepreneurial orientation in small and medium sized enterprises during economic crisis.
Juha Soininen
ENTREPRENEURIAL ORIENTATION IN
SMALL AND MEDIUM-SIZED ENTERPRISES
DURING ECONOMIC CRISIS
Acta Universitatis
Lappeenrantaensis 526
Thesis for the degree of Doctor of Science (Economics and Business Administration)
to be presented with due permission for the public examination and criticism in the
Auditorium of the Student Union House at Lappeenranta University of Technology,
Lappeenranta, Finland, on the 12th of September, 2013, at noon.
Supervisors Docent, Ph.D. Minna Martikainen-Peltola
Hanken School of Economics
Finland
Professor Kaisu Puumalainen
School of Business
Lappeenranta University of Technology
Finland
Reviewers Professor Mervi Niskanen
Business School
University of Eastern Finland
Finland
Professor Doctor Sascha Kraus
Institute for Entrepreneurship
University of Liechtenstein
Liechtenstein
Opponent Professor Mervi Niskanen
Business School
University of Eastern Finland
Finland
ISBN 978-952-265-446-5
ISBN 978-952-265-447-2 (PDF)
ISSN-L 1456-4491
ISSN 1456-4491
Lappeenrannan teknillinen yliopisto
LUT Yliopistopaino 2013
ABSTRACT
J uha Soininen
ENTREPRENEURIAL ORIENTATION IN SMALL AND MEDIUM-SIZED
ENTERPRISES DURING ECONOMIC CRISIS
Lappeenranta, 2013
86 p.
Acta Universitatis Lappeenrantaensis 526
Diss. Lappeenranta University of Technology
ISBN 978-952-265-446-5, 978-952-265-447-2 (PDF), ISSN-L 1456-4491, ISSN 1456-4491
The economic importance of small and medium-sized enterprises (SMEs) and
entrepreneurship has increased significantly in recent decades and entrepreneurial activity and
SMEs are deemed vital to economic progress. Therefore, it is justifiable to study how small
firms and entrepreneurs can enhance their performance and emergence in the turbulent
economic environment.
The concept of entrepreneurial orientation (EO) has recently attracted considerable attention
in the field of entrepreneurship research. EO generally refers to a firm’s propensity to be
innovative, to be proactive and to take risks. A majority of EO studies so far have found that
adopting EO associated entrepreneurial behaviors will help firms to create or sustain a high
level of performance.
This dissertation explores the main drivers and performance implications of EO for SMEs in
time of economic crisis. Hence the first objective of this dissertation is to examine the
performance implications of EO and to test the role of EO on how firms are treated by the
crisis at operative level. The second objective is to expand the prevailing understanding of
determinants of EO by exploring the relationship between owner's work related values,
attitudes, demographic characteristics, firm’s financial resources and EO.
EO was found to be a significant and positive factor behind a firm’s long run growth. Hence it
can be said that EO has positive implications for firm performance. But on the other hand,
during a time of economic crisis the different dimensions of EO had both positive and
negative effects on performance of SMEs. The performance implications varied across
different stages of the crisis and were also dependent on what measure was used for
measuring the performance. The main drivers of EO in SMEs were the personal work related
values of the entrepreneur and his/her prior experience as an entrepreneur. The intrinsic work
values related to interest, responsibility, challenge, self-development or intellectual
stimulation and values related to status, power, achievement and recognition had a positive
effect on the level of EO. On the other hand, extrinsic values related to high income, material
possessions, benefits such as generous holidays, job security, and comfort through good
working conditions decreased the level of EO.
Keywords: entrepreneurial orientation, small and medium-sized enterprises, performance,
economic crisis, work values, attitudes, behavior.
UDC: 65.017.2/.3:65.012:338.124
ACKNOWLEDGEMENTS
This project started in spring 2009 and now four years later it seems to be nearing completion.
Now it is time to thank the many people who have supported and helped me during these
years. I am especially grateful to my supervisors Docent Minna Martikainen and Professor
Kaisu Puumalainen, who have guided and supported me throughout the process.
I am also grateful to my great co-authors Kalevi Kyläheiko, Kaisu Puumalainen, Minna
Martikainen, Sami Saarenketo, Helena Sjögrén, Pasi Syrjä, and Susanne Durst. It has been a
privilege to work with such talented writers.
Further, I would like to thank the distinguished pre-examiners of this dissertation, Professor
Mervi Niskanen and Professor Doctor Sascha Kraus, for their valuable comments and
remarks. These comments helped me to improve the quality of my work in the final stage.
I also owe a debt of gratitude to all my colleagues who make work at the University more
enjoyable. For example, J yri Kinnunen, Satu Pätäri, Sanna Hämäläinen, Maija Hujala, Eero
Pätäri, Pasi Tuominen, Anssi Tarkiainen, Heli Arminen, and Jorma Sappinen deserve to be
mentioned as they are great coffee/lunch/discussion companions. Also, Terttu Hynynen,
Mervi Lensu, and Toni Haikala deserve my thanks for all their help with the day-to-day
practical issues during the five years I have been working at the University.
I am grateful for the financial support received from the Foundation for Economic Education
(Liikesivistysrahasto) and the Support Foundation of Lappeenranta University of Technology
(Lappeenrannan teknillisen yliopiston tukisäätiö/ Lauri ja Lahja Hotisen rahasto).
I would like also to thank Eeva Häyrinen for her contribution in the practical issues of this
dissertation process and Virginia Mattila for her help with revising the language of this
dissertation.
I express my warmest thanks to my parents, sister and friends. Finally, last but not definitely
least, I owe my most profound gratitude to my beloved wife Salla and to my beautiful
daughters Aino and Enni. You have always taken my thoughts away from the work-related
issues the moment I came home after a day at the office. It has been the best support for this
project, to show what is really important in life.
Lappeenranta, September 2013
J uha Soininen
TABLE OF CONTENTS
ABSTRACT
ACKNOWLEDGEMENTS
1. INTRODUCTION ...................................................................................................... 13
1.1 RESEARCH BACKGROUND ......................................................................................... 13
1.2 RESEARCH GAPS AND OBJECTIVES ............................................................................ 14
1.3 DEFINITIONS AND SCOPE .......................................................................................... 19
1.4 OUTLINE OF THE DISSERTATION ............................................................................... 21
2. THEORETICAL FRAMEWORK ............................................................................. 24
2.1 THE CONCEPT OF ENTREPRENEURIAL ORIENTATION ................................................ 24
2.2 THE EO-PERFORMANCE RELATIONSHIP ................................................................... 28
2.2.1 PERFORMANCE MEASURES IN EO LITERATURE ........................................... 28
2.2.2 EMPIRICAL FINDINGS ON EO-PERFORMANCE RELATIONSHIP .................. 30
2.3 DRIVERS OF ENTREPRENEURIAL ORIENTATION ........................................................ 33
2.3.1 ANTECEDENTS OF ENTREPRENEURIAL ORIENTATION ................................ 34
2.3.2 INDIVIDUAL LEVEL ENTREPRENEURSHIP ..................................................... 37
2.3.3 ORGANIZATIONAL CHARACTERISTICS ........................................................... 40
2.3.4 WORK VALUES ................................................................................................... 41
3. RESEARCH DESIGN AND METHODS .................................................................. 44
3.1 OVERVIEW OF THE RESEARCH DESIGN ..................................................................... 44
3.2 DATA COLLECTION AND METHODS OF ANALYSIS ...................................................... 45
3.3 MEASURES USED IN THE DISSERTATION .................................................................... 47
3.4 ISSUES RELATED TO SURVEYS ................................................................................... 51
4. SUMMARY OF THE ARTICLES AND RESULTS ................................................. 53
4.1 ENTREPRENEURIAL ORIENTATION: GROWTH AND PROFITABILITY OF FINNISH
SMALL AND MEDIUM-SIZED ENTERPRISES ..................................................................... 53
4.1.1 OVERALL OBJECTIVE ........................................................................................ 53
4.1.2 MAIN FINDINGS ................................................................................................. 54
4.2 THE IMPACT OF GLOBAL ECONOMIC CRISIS ON SMES – DOES ENTREPRENEURIAL
ORIENTATION MATTER? .................................................................................................. 54
4.2.1 OVERALL OBJECTIVE ........................................................................................ 54
4.2.2 MAIN FINDINGS ................................................................................................. 55
4.3 DOES INTERNATIONAL ENTREPRENEURSHIP MAKE FIRMS MORE VULNERABLE? – THE
IMPACT OF GLOBAL ECONOMIC CRISIS ON FINNISH SMES .............................................. 55
4.3.1 OVERALL OBJECTIVE ........................................................................................ 55
4.3.2 MAIN FINDINGS ................................................................................................. 56
4.4 ENTREPRENEURIAL ORIENTATION IN SMALL FIRMS – A VALUES-ATTITUDES-
BEHAVIOR APPROACH ...................................................................................................... 56
4.4.1 OVERALL OBJECTIVE ........................................................................................ 56
4.4.2 MAIN FINDINGS ................................................................................................. 56
4.5 WHAT DRIVES EO IN SMALL FIRMS? ROLES OF THE OWNER-MANAGER AND
FINANCIAL CONDITIONS ................................................................................................... 57
4.5.1 OVERALL OBJECTIVE ........................................................................................ 57
4.5.2 MAIN FINDINGS ................................................................................................. 57
4.6 SUMMARY OF OVERALL RESULTS ............................................................................. 58
5. CONCLUSIONS ......................................................................................................... 62
5.1 ANSWERING THE RESEARCH QUESTIONS .................................................................. 62
5.2 CONTRIBUTIONS ....................................................................................................... 66
5.3 MANAGERIAL, THEORETICAL, AND POLICY IMPLICATIONS ...................................... 67
5.4 LIMITATIONS AND SUGGESTIONS FOR FUTURE RESEARCH ........................................ 69
REFERENCES ................................................................................................................... 71
PART II: ARTICLES
1. Soininen, J uha, Martikainen, Minna, Puumalainen, Kaisu and Kyläheiko, Kalevi
(2012). Entrepreneurial Orientation: Growth and Profitability of Finnish
Small and Medium-Sized Enterprises. International Journal of Production
Economics, 140 (2), 614-621.
2. Soininen, J uha, Puumalainen, Kaisu, Sjögrén, Helena, Syrjä, Pasi (2012). The impact
of global economic crisis on SMEs – does entrepreneurial orientation matter?
Management Research Review, 35 (10), 927-944.
3. Soininen, J uha, Saarenketo, Sami, Puumalainen, Kaisu and Sjögrén, Helena (2011).
Does International Entrepreneurship Make Firms more Vulnerable? – The
Impact of Global Economic Crisis on Finnish SMEs. Presented in the proceedings
of the 14th McGill International Entrepreneurship Conference, University of Southern
Denmark, Odense, Denmark, September 16–18, 2011.
4. Soininen, J uha, Puumalainen, Kaisu, Sjögrén, Helena, Syrjä, Pasi and Durst, Susanne
(2013) Entrepreneurial Orientation in small firms: a values-attitudes-behavior
approach. International Journal of Entrepreneurial Behaviour & Research, 19 (6),
(forthcoming).
5. Soininen, J uha, Puumalainen, Kaisu, Sjögrén, Helena and Syrjä, Pasi (2012)
What drives EO in small firms? Roles of the owner-manager and financial
conditions. Presented in the proceedings of the 17th Nordic Conference on Small
Business Research, Helsinki, Finland, May 23–25, 2012
The contribution of Juha Soininen to the articles:
1. Wrote the most of the paper and had a central role in modifying the paper on the basis
of the reviewers’ comments
2. Wrote the most of the paper. Had a central role in modifying the paper on the basis of
the reviewers’ comments. Conclusions on the findings was a joint effort.
3. Wrote the most of the paper. Finalizing the paper was a joint effort with the co-author.
4. Wrote some parts for the first draft. Wrote most of the second heavily revised version
of the paper. Conducted the data analysis and played a central role in modifying the
paper on the basis of the reviewers’ comments.
5. Wrote the most of the paper. Conducted the data analysis. Finalizing the paper was a
joint effort with the co-authors.
PART I: OVERVIEW OF THE DISSERTATION
13
1. INTRODUCTION
1.1 Research background
The economic importance of small and medium-sized enterprises (SMEs) and
entrepreneurship has increased significantly in recent decades, since large companies are
increasingly concentrating on core competences and implementing mass lay-offs (van Stel et
al., 2005). Moreover, many scholars have recognized and demonstrated the crucial role
played by SMEs as a driving engine of growth, job creation, competitiveness in global
markets and the general health and welfare of economies both nationally and internationally.
For example around 85 per cent of new jobs in the U.S. are created by small business
(Audretsch, 2002; Lappalainen and Niskanen, 2009; Lappalainen and Niskanen 2012). As the
entrepreneurial activity and SMEs are seen to be increasingly indispensable to economic
progress, it is important to study how small firms and entrepreneurs can enhance their
performance and ensure their survival in the turbulent economic environment. Coping with
such harsh conditions may require firms to demonstrate special capabilities, internal resources
or behaviors such as innovativeness, flexibility or adaptability. In that sense the strategic
management and entrepreneurship literature may offer useful concepts to utilize when looking
for possible remedies or enhancements for firm’s chances of performing during economic
crises. Hakala (2011) pointed out that several distinct strategic orientations of businesses,
such as market, customer, learning, technology, and entrepreneurial orientations have gained
considerable attention from both managers and management scholars. Several studies have
provided evidence that one of these orientations alone (Kohli and J aworski, 1990; Calantone
et al., 2002; Wiklund and Shepherd, 2005) and also the interaction between the orientations or
different combinations of the orientations may provide a source of high performance or
competitive advantage for firms (Hult et al., 2004). As these strategic orientations are
significant drivers of a firm’s performance, we focus here on one of them, more specifically
on entrepreneurial orientation.
In recent decades the concept of entrepreneurial orientation (EO) has attracted considerable
attention in the field of entrepreneurship research. By EO we generally refer to a firm’s
propensity to be innovative, to be proactive and to take risks (Andersén, 2010). The EO
14
concept is widely used in the field of entrepreneurship. For instance Wales et al. (2011)
pointed out that more than 150 studies of EO have been conducted, implying that the
conceptual meaning of EO is widely accepted and that it is widely considered as relevant
concept and a cornerstone in the literature on firm-level entrepreneurship. Most EO studies
(e.g. Zahra, 1986; Covin and Slevin, 1990; Zahra and Covin, 1995; Wiklund, 1999; Wiklund
and Shepherd, 2005; Kraus et al., 2012) have focused on the EO-performance relationship
and have found that adopting EO associated entrepreneurial behaviors will help firms to
create or sustain a high level of performance (Covin and Slevin, 1991; Rauch et al., 2009).
As the EO is a much studied topic and a great deal is known about it, when scholars like
Wiklund and Shepherd (2011, p.925) ask “are we at a point of saturation with little more to
learn, or can future investigation of EO still make contributions to entrepreneurship
literature?” it is clear that new contexts or approaches to the theme are welcome. Miller
(2011) points out that the performance implications of EO vary across contexts. The latest
global economic crisis therefore offers a very fruitful context for studying the effects of EO
on the performance of small and medium-sized enterprises. Moreover, Wiklund and Shepherd
(2011) and Miller (2011) note that in future research on EO there is room for studies
scrutinizing the mechanisms underlying the antecedents of EO, or how different resources
may affect different aspects of EO.
1.2 Research gaps and objectives
Research on EO abounds, and the relationship between EO and firm performance has been
most intensively studied (some recent empirical studies include Harms et al., 2010; Grande et
al., 2011; Lechner and Gudmunddson, 2012; Eggers et al., 2013; Kraus, 2013; Messersmith
and Wales, 2013) Therefore, to be able to make a contribution to the literature one needs to
identify certain gaps in the literature. Through a comprehensive inspection of the literature, it
was possible to identify research gaps for this dissertation. Studies so far (Covin and Slevin,
1989; Zahra and Covin, 1995; Lumpkin and Dess, 2001) have noted that contextual
influences affect how successful EO is in performance. In business environments especially,
where rapid changes, hostility, uncertainty, and aggressive competition are present, a firm’s
entrepreneurial posture plays an important role as a performance enhancing factor. The most
15
recent global economic crisis offers an exceptional context in which to study the performance
implications of EO in small firms. During the period 2008-2009, the global economy faced its
most serious recession and financial crisis since the Great Depression of the 1930’s, and, as
consequences of the crisis, Europe and the USA faced the collapses, government bail-outs or
partial nationalizations of major financial institutions (Smallbone et al., 2012). The crisis also
affected the Finnish economy, since in the last quarter of 2008 the number of layoffs, order
cancellations and financial difficulties increased drastically, leading among other things to a
30 per cent increase in the number of bankruptcies among the Finnish SMEs. Figure 1 gives a
picture of the overall situation in the Finnish economy during a five-year period. It shows the
development of Finland’s GDP from 2006 to 2011, the most relevant time period for the
purposes of this dissertation. The annual growth in GDP started to slow down in the last
quarter of 2007. The growth turned negative in the third quarter of 2008 and stayed negative
until the first quarter of 2010. It is noteworthy that data collection was at the end of Q2 in
2009 (the arrow in the figure). The entrepreneurs’ opinions regarding their EO and how the
recession was affecting their firms, were therefore captured is a situation when the Finnish
economy overall was in recession as GDP has decreased for four consecutive quarters.
Figure 1. Annual Growth Percentage of Finland’s GDP (Statistics Finland, 2011)
Studies focusing on firms’ entrepreneurial activities and the performance implications in such
extreme environmental and market turbulence are surprisingly scarce. Kraus et al. (2011) and
Grewal and Tansuhaj (2001) are among the few studies where EO or strategic flexibility,
which closely resembles the proactiveness dimension of EO, are related to business
-12
-10
-8
-6
-4
-2
0
2
4
6
8
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2006 2007 2008 2009 2010 2011
16
performance under circumstances where firms were facing acute market uncertainty and
instability. Hence, there is indeed a gap in the literature that justifies the existence of this
dissertation.
Secondly, Vij and Bedi (2012) noted that there is no consensus among researchers on the
appropriate measures of business performance indicators. This has led to a situation where a
wide selection of performance measures i.e. objective and subjective measures have been
used. In this dissertation we use objective data which is widely accepted by researchers to be a
more appropriate measure than the subjective measures of performance, which are widely
used in the EO literature (Covin et al., 1994; Zahra and Neubaum, 1998; Lumpkin and Dess,
2001; Baker and Sinkula, 2009; Kraus et al., 2012; Messersmith and Wales, 2013) as
objective performance measures are very difficult to obtain (Vij and Bedi, 2012). The
objective financial statement based data enable us to avoid the disadvantages inherent in
subjective measures and to measure the multidimensional construct of performance from
many different angles, such as growth, profitability, and liquidity, efficiency, size and
leverage (Carton and Hofer, 2006). Hence, there is a minor gap in the literature related to the
type of data used to measure business performance and this dissertation can contribute to
bridging that gap.
Thirdly, although the literature on the determinants of entrepreneurship has flourished and
expanded in the past three decades, there is still room for contributions. A number of studies
(Reynolds et al., 1994; Blanchflower and Oswald, 1998; Cowling, 2000; Lin et al., 2000;
Davidsson, 2006; Grilo and Irigoyen, 2006; Grilo and Thurik, 2008) have either focused on
demographic determinants or macroeconomic determinants when explaining the level of
entrepreneurship. Moreover, the number of studies explaining EO is very limited (Salvato,
1994; Morris et al., 2007; J alali, 2012 Meynhardt and Diefenbach, 2012; Zahra, 2013) often
concentrating on the organizational, environmental or demographic (gender, age, level of
education) factors that foster entrepreneurial behaviors. Furthermore, in the literature there is
a clear need for empirical studies focusing on the personal characteristics of the entrepreneur
or top manager as the owner's personality, values and identities are recognized as important,
especially in the small firm context (Simsek et al., 2010; Miller, 2011; Miller and Le Breton-
Miller, 2011). To further emphasize the topicality of this dissertation, we can quote Pines et
al. (2012, pp. 96) when they argued that “in recent years research on entrepreneurial
17
personality has re-emerged as an important topic of investigation and leading
entrepreneurship scholars have noted that a psychological approach is necessary to
understand entrepreneurship”. Wiklund (1999) likewise argued that particularly when applied
to small firms, EO might be seen as a result of individual-level determinants rather than firm-
level outcomes. Therefore more research is needed focusing on the individual entrepreneur’s
personality in explaining EO and hence, thereby exposing a gap in the field of EO literature to
be addressed in this dissertation.
Given the research gaps identified and objectives set, the research questions of this study are
formulated as follows:
The main research question:
What are the main drivers and performance implications of EO for SMEs in time of
economic crisis?
For a more detailed understanding of the phenomenon of interest, the main research question
above is broken down into more detailed subquestions, which are the following:
Sub-question 1: What are the performance implications of EO and the role of EO in how
firms are treated by the crisis at operational level?
Three of the five articles are aimed to answer the sub-question above. More detailed
objectives of those three articles are the following:
Article 1: What are the implications of EO on the dynamics of profitability and growth?
Article 2: Can EO mitigate the negative effects of economic crisis on firms’ performance and
operations?
Article 3: How the dimensions of EO and the firm’s level of internationalization affect its
financial performance?
18
The articles above are related to the performance implications of EO and closely related to the
approaches in the traditional EO-performance literature. The following sub-question is
representing a novel approach to explain EO in response to the call for more psychology
oriented approaches to explaining entrepreneurship in general.
Sub-question 2: What are the main drivers of EO in SMEs?
Two of the five articles are intended to answer the sub-question above. The aims of these two
articles are the following:
Article 4: To ascertain the roles of entrepreneurs’ work values and goal related attitudes as
determinants of EO.
Article 5: To ascertain if entrepreneurs’ work values, prior experience and firms’ financial
attributes explain the level of EO?
Each of the five research articles is intended to answer one of these sub-questions,
culminating in a situation where comprehensive answers to the main research question can be
evinced.
The main objective of this dissertation is to try to fill the abovementioned gaps in the
literature. Figure 2 illustrates the general concepts covered in this dissertation with EO as the
focal theoretical concept in each of the research articles forming the second part of the
dissertation. The concepts in the rectangles are covered in one or more articles. The arrows in
the figure indicate the proposed relationship between the concepts empirically tested in the
research articles. SMEs during economic crisis is the context in which these relationships are
studied. To put it in other words, the first broad objective of this dissertation to examine the
implications for performance of EO during a time of extraordinary economic turbulence and
to test the role of EO in how firms are treated by the crisis at operational level. The second
broad objective of the dissertation is to extend the prevailing understanding of the
19
determinants of EO by exploring the relationship between owner's work related values,
demographic characteristics, firm’s financial resources and EO.
Figure 2. Conceptual framework of the dissertation
1.3 Definitions and scope
This section presents a brief definition of the key concepts in this dissertation. More detailed
discussion is provided in the following chapter. The main theme in this dissertation is EO in
Finnish small and medium-sized enterprises. EO is argued to be a multidimensional strategic
construct which has become a central concept in the domain of entrepreneurship, having
received a substantial amount of theoretical and empirical attention. In the literature EO is
often claimed to comprise three separate dimensions, namely innovativeness, risk-taking, and
proactiveness (Rauch et al., 2009).
The three core dimensions of EO were conceptualized by Miller (1983) and can be defined as
follows: Innovativeness is the inclination to commit to creativity and experimentation through
Consequences
of Economic
Crisis for
Firm
Entrepreneur’s
Demographic
Characteristics
Characters
Firm’s
Financial
Resource Base
Entrepreneurial
Orientation
Firm
Performance
Entrepreneur’s
Work Values
SMEs during Economic Crisis
20
the introduction of new products/services as well as technological leadership via R&D in new
processes. Risk-taking involves taking daring measures by venturing into the unknown,
borrowing heavily, and/or committing remarkable resources to ventures in uncertain
environments. Proactiveness is an opportunity-seeking, forward-looking perspective
characterized by the introduction of new products and services ahead of the competition and
acting in anticipation of future demand (Rauch et al., 2009).
The second theme in the dissertation is the entrepreneur’s work related values. According to
Gahan and Abeysekera (2009) work values are often considered as a key determinant of many
of an individual’s work-related attitudes and behaviors and therefore it is appropriate to focus
on them when examining the antecedents of EO.
Lyons et al. (2006, p. 607) defined work values as “generalized beliefs about the desirability
of certain attributes of work and work-related outcomes”. Gahan and Abeysekera (2009, p.
129) likewise stated that “the concept of work values captures the end states that individuals
desire and expect through working”. Like values in general work values are said to endure
and remain stable over time and to be ordered hierarchically in the individual’s mind
(Rokeach, 1973; Lyons et al., 2010). In spite of a plethora of different sets of values and
definitions, there appears to be consensus in making a distinction among values between
intrinsic, extrinsic and social or relational values (Gahan and Abeysekera, 2009). In addition
to these three types of work values Ros et al. (2009) suggested a fourth value, namely which
is related to status and recognitions.
The abovementioned values can be briefly defined as follows: intrinsic values refers to those
rewards which derive from the work itself, like challenge, variety, self-development, sense of
achievement or intellectual stimulation. Secondly, extrinsic values are related to those
material benefits yielded by the job such as pay, benefits, job security, and comfort. Status
values are related to prestige, influence and power, whereas social values are those pertaining
to affective relations with other people (Gahan and Abeysekera, 2009; Lyons et al., 2010).
The scope of the analysis in the dissertation is limited to small and medium-sized Finnish
private limited companies. The informants of the survey from whom data related to EO and
work values was gathered were the CEOs or owner-managers of the firms, meaning that in the
21
most cases the data reflects the values and entrepreneurial stance of the entrepreneur. In this
sense the level of analysis in this dissertation is both the individual level and the firm level as
the performance indicators are objective firm level figures based on the income statement and
balance sheet information.
1.4 Outline of the dissertation
This dissertation comprises two main parts Part I and Part II. Part I, an introductory part,
includes five chapters. The first chapter above described the rationale, provided an overview
of the research on EO accomplished so far, and pointed out the research gaps the dissertation
at hand proposes to address. It also set out the objectives, defined the key concepts and
presented an outline of the dissertation. Chapter 2 covers the relevant literature related to the
concepts used in the articles. Chapter 3 gives a brief introduction to the research design of the
dissertation, to the data and to the research methods used. Chapter 4 introduces the articles,
describing the objectives and main findings of each. It also presents answers to the research
questions. Finally, Chapter 5 presents the theoretical contributions of the dissertation and
makes suggestions for further research. Part II of the dissertation consists of five research
articles addressing the two sub-research questions. Figure 3 illustrates the outline of the
dissertation.
22
Figure 3. Outline of the dissertation
ARTICLE 1:
Entrepreneurial orientation: growth
and profitability of Finnish small and
medium-sized enterprises.
ARTICLE 2:
The impact of global economic crisis on
SMEs – does entrepreneurial
orientation matter?
ARTICLE 3:
Does international entrepreneurship
make firms more vulnerable? – the
impact of global economic crisis on
Finnish SMEs
ARTICLE 4:
Entrepreneurial orientation in small
firms – a values-attitudes-behavior
approach.
PART I: INTRODUCTION
PART II: ARTICLES
Sub-question 2:
What are the main drivers of EO
in SMEs?
Sub-question 1:
What are the performance
implications of EO and the role of
EO in how firms are treated by
the crisis at operational level?
Main research question: What
are the main drivers and
performance implications of EO
for SMEs in time of economic
crisis?
ARTICLE 5:
What drives EO in small firms? Roles
of the owner-manager and financial
conditions.
23
The first article takes a rather conventional approach to the topic offering a general
understanding of the relationship between EO and firm performance among Finnish SMEs.
An addition to this conventional approach a unique attempt was made to shed light on the
relationship between the strategic construct and actual riskiness of the firm based on a risk
measure derived from balance sheet figures. The second article takes a slightly more
ambitious approach as here the EO is broken down into more detailed dimensions and, in
addition to the traditional performance implications, the focus is on the operational effects of
the economic crisis perceived by the managers. In the third article the focus is on how EO
affects financial performance at different stages of the economic crisis and the role of the
firm's level of internationalization. Articles four and five take a different approach from the
three first papers. In these two papers EO is treated as a dependent variable and the purpose is
to examine its determinants. The work related values of the entrepreneur are in a key position
in these two papers. Paper four especially takes a rather ambitious and novel approach to the
issue. Altogether these five research articles can be seen to give a fairly comprehensive
picture of EO in SMEs.
24
2. THEORETICAL FRAMEWORK
In this chapter the key concepts of this dissertation are presented and the relevant literature
related to them is also covered in relevant depth to highlight the acceptance and distribution of
these concepts. First EO is discussed to give the reader an adequate understanding of the
phenomenon and its implications mainly for firm performance. Thereafter the focus shifts to
the literature related to the antecedents of entrepreneurship. Studies examining the possible
determinants of entrepreneurship and entrepreneurial behavior are covered to reveal the logic
and rationale behind the approach in this part of the dissertation.
2.1 The concept of entrepreneurial orientation
The phenomenon of EO has become a central focus of the entrepreneurship literature and the
subject of more than three decades of research (Covin and Wales, 2012). EO is considered to
be a higher order construct with underlying dimensions (George and Marino, 2011) and
Miller (1983) conceptualized the three focal dimensions of EO as innovativeness, risk-taking
and proactiveness and these three dimensions have since been used consistently in the
literature (Kemelgor, 2002; Dimitratos et al., 2004). Lumpkin and Dess (1996) described
innovativeness as follows: Innovativeness reflects a firm’s tendency to engage in and support
new ideas, novelty, experimentation, and creative processes that may result in new products,
services, or technological processes. Innovativeness represents a basic willingness to depart
from existing technologies or practices and venture beyond the current state of the art. They
argued that innovativeness is a key component of EO because it reflects important means by
which firms pursue new opportunities. Strategic risk-taking means actions such as venturing
into the unknown, heavy borrowing, and/or committing large portions of corporate assets in
uncertain environments (Baird and Thomas, 1985). In the same manner, Lumpkin and Dess
(1996) argued that entrepreneurially oriented firms are often characterized by risk-taking
behavior, such as incurring heavy debts or making significant resource commitments, in the
interests of obtaining high returns by seizing opportunities in the marketplace. Proactiveness
was described by Miller (1983) as an opportunity-seeking, forward-looking perspective
characterized by the introduction of new services and products ahead of the competition and
acting in anticipation of future demand.
25
In addition to these three much used dimensions Lumpkin and Dess (1996) argued that
dimensions such as competitive aggressiveness and autonomy should also be considered as
essential components of EO. These two additional dimensions were defined by Lumpkin and
Dess (2001) as follows: Competitive aggressiveness is said to reflect the intensity of a firm’s
effort to outperform industry rivals, characterized by a strong offensive posture and a forceful
response to competitor’s actions. Autonomy is independent action by an individual or team
aimed at realizing a business concept or vision and carrying it through to completion. The
number of studies in the EO literature using all these five dimensions is very limited (e.g.
George et al., 2001) when compared to the number of studies using the three dimensions of
Covin and Slevin (1989). It is obvious that the dimension of autonomy is related to larger
corporations and therefore, in the context of small firms especially, it can be reasonably
omitted from the scale. The same exclusion procedure may also be relevant for competitive
aggressiveness, as small firms may lack the competitive power needed to be able to behave as
the dimension expects.
George and Marino (2011) stated that in spite of the wide acceptance of the construct a
number of issues regarding dimensionality, the nature of the construct, interdependence of the
dimensions etc. are worth mention. First, regarding the dimensionality issue Rauch et al.
(2009) noted that the focal dimensions of EO are usually highly inter-correlated with each
other, which leads to combining these dimensions into one single factor. In the EO literature
there is no solid consensus on the dimensionality of the EO construct. On the one hand,
scholars such as Covin and Slevin (1989) have argued that the EO construct is best viewed as
a unidimensional concept and on the other hand Lumpkin and Dess (2001), for example, have
suggested that the dimensions of EO may relate differently to firm performance. Dess et al.
(2011) later mentioned that, if a highly inter-correlated EO scale (for instance the nine-item
scale by Covin and Slevin (1989)) is split into separate dimensions, this kind of analysis
would not adequately represent the construct of EO. On the other hand they still suggest
running this kind of “supplementary analysis” to obtain additional insights.
Similarly, an issue related to the use of different numbers of dimensions is a topic worth
discussing as there are two main schools of thought arguing how best to capture the EO,
26
Lumpkin’s and Dess’s (1996) five dimensions or Covin’s and Slevin’s (1989) three
dimensions. Besides these two main contenders George and Marino (2011) noted that some
scholars (e.g. Mertz and Sauber, 1995) have suggested that the right number of dimensions is
even fewer than three. The comprehensive meta-analysis by Rauch et al. (2009) and also a
work by George and Marino (2011) present an extensive listing of scholarly studies and the
EO scales used in them and whether dimensions have been treated separately or not. The use
of different items, different numbers of dimensions and different combinations of these has
given rise to concern relating to construct validity, as Dess et al. (2011) noted a situation with
too much variation in the definition and measurement of the key construct will cause
difficulties when building on earlier findings.
Secondly, there is debate on the nature of the construct of EO and the relationship between
EO and its dimensions a by definition EO is a higher-order construct implying that EO
consists of structural relationships with other structures. A problem arises from the fact that in
the case of the EO the definitions used in the literature have not been consistent in the
relations between the dimensions and the superordinate construct, which has led to
interpretations and disputes (George and Marino, 2011). Recently fundamental discussion has
emerged in the literature on whether EO is a reflective or formative construct (Covin and
Wales, 2012).
Figure 4 illustrates the difference between reflective (causality from the construct to what it
measures) and formative (causality from the measures to the construct) constructs. If EO is
considered a reflective construct it implies that an entrepreneurially oriented firm will exhibit
characteristics of proactiveness, innovativeness and risk-taking and an increase in EO would
be anticipated to increase the levels of each of these dimensions (George and Marino, 2011).
On the other hand, in the case of the formative construct the process flows the opposite way,
implying that EO is composited of its dimensions. That is, EO is formed by aggregations of
the dimensions. George and Marino (2011) argued EO to be reflective construct, reasoning
that empirical studies have consistently shown dimensions to covary implying that a change
in EO causes changes in all its dimensions. Therefore they suggested that the dimensions are
only reflections of the larger, unobservable construct representing a firm’s strategic posture.
27
On the other hand, approaches to EO used by other scholars, for instance Lumpkin and Dess
(2001), imply that the EO would be formative construct created by its dimensions.
Figure 4. Reflective vs. formative construct
The lack of consensus on the directions of causality has many implications for several issues.
For example, if the objective is to explain the level of EO, EO can be explained by some
antecedents, or is the right way to seek antecedents for innovativeness, proactiveness and risk-
taking? Similarly, if the purpose is to enhance the level of a firm’s EO is the right approach to
be more innovative, proactive and risk-taking or is there something else that has to be done to
be more entrepreneurial?
EO
EO
Innovativeness
Proactiveness
Innovativeness
Risk-taking Proactiveness
Risk-taking
Reflective construct
Formative construct
28
2.2 The EO-performance relationship
The modern business environment is considered to be highly dynamic; the life cycles of
products and business models are shortened, the future profit streams from existing operations
are uncertain, and businesses need to constantly monitor the environment for new
opportunities. In such circumstances, adopting an entrepreneurially oriented posture may be
beneficial for firms (Rauch et al., 2009). The supportive impact of EO on performance is
related to the first-mover advantages and the tendency to take advantage of emerging
opportunities (Wiklund, 1999). Zahra and Covin (1995) argued that firms with EO are able to
“skim” the markets ahead of their competitors by targeting premium market segments and
charging high prices. Wiklund (1999) pointed out that entrepreneurially oriented firms
monitor market changes and respond rapidly, thus seizing emerging opportunities. Innovation
keeps them ahead of their competitors, gaining a competitive advantage that leads to
improved financial results. Proactiveness gives firms the capability to launch new products or
services on the market before their competitors, which also gives them a source of
competitive advantage. Moreover, Wiklund (1999) argued that it is reasonable to assume that
EO is even more beneficial in the context of small firms as the smallness per se may be
conducive to flexibility and innovation.
2.2.1 Performance measures in EO literature
Financial performance is claimed to be a multidimensional construct, for instance Carton and
Hofer (2006) described financial performance to be a combination of profitability, growth,
efficiency, liquidity, size, and leverage, which are measured with relevant measures. The
potential measures to assess the above-mentioned dimensions of performance are for instance:
return on assets, sales growth, sales per employee, current ratio, number of employees, and
debt to equity.
The concept of financial performance itself is a complex construct, and the EO literature
offers no solid consensus on the appropriate measures of small firm performance (Wiklund,
1999). Hence the prior literature shows that the variety of measures that have been used to
assess the firm performance has been rather diverse. For instance, Kraus et al. (2012) noted
29
that performance is regularly measured in one or a combination of the following means:
perceived financial, perceived non-financial and archival financial.
Several studies (Dess et al., 1997; Wiklund, 1999; Lumpkin and Dess, 2001; Wiklund and
Shepherd, 2003; Madsen, 2007; Runyan et al., 2008; Kraus et al., 2012; Lechner and
Gudmundsson, 2012; Messersmith and Wales, 2013) have used perceived performance
indicators to assess firm performance. The items that were used to form the performance
indicator typically based on manager’s subjective views about firm’s profitability, growth,
market share, in relative to its most important competitors. The overall performance measure
is typically formed by merging several items measuring the different aspects of performance
into one performance score or index (e.g. Lechner and Gudmundsson, 2012). The reasons for
the use of perceived performance measures are commonly the lack of publicly available
archival performance figures on SMEs (Kraus et al., 2012) or the fear of losing respondents if
such accurate performance figures are requested in questionnaires as privately owned firms
are often reluctant to disclose such financial information (Messersmith and Wales, 2013).
This kind of subjective performance data may be prone to biases or inaccuracy as it relies on
key informant’s, typically CEO’s, ability and willingness to report and rate firm’s objective
performance accurately with subjective proxies (Kraus et al., 2012). Many studies on the
other hand have shown that subjective and objective performance measures are typically
strongly positively correlated (Wall et al., 2004; J antunen et al., 2005; Stam and Elfring;
2008; Messersmith and Wales, 2013) and hence support the validity of the subjective
performance measures.
The use of archival financial performance measures is significantly less frequent than the use
of the above-mentioned subjective performance measures (e.g. Zahra and Covin, 1995; Zahra
and Garvis, 2000; Covin et al., 2006; Stam and Elfring, 2008; Zahra, 2008; Harms et al.,
2010; Cassia and Minola, 2012). Similarly, Rauch et al. (2009) reviewed 52 EO studies and
found that performance was measured by archival financial measures in only seven studies.
Also, among those studies using secondary data there is variation in how performance is
defined and measured. Some scholars like Zahra and Covin (1995) combined measures of
return on assets (ROA), return on sales (ROS) and growth into a single performance indicator,
as they see performance as a multidimensional concept. Whereas some scholars (Moreno and
30
Casillas, 2008) argued that this kind of an approach may not be the most suitable because
growth dimension and profitability dimension are sometimes contradictory and therefore
should not be combined into one single indicator. Wiklund (1999) also pointed out that there
is a common sentiment that growth is a more accurate performance indicator than accounting
measures and hence superior to indicators of financial performance. For instance, Covin et al.
(2006), Stam and Elfring (2008) and Moreno and Casillas (2008) used sales growth as
performance indicator in their studies. Profitability measured by return on assets (ROA), has
been used as an indicator for performance in studies by Zahra and Garvis (2000) and Zahra
(2008).
Non-financial measures, such as satisfaction and global success ratings made by managers,
can also be used in entrepreneurship research to assess the perceptions of the SME’s
management towards the performance of the firm because of a strong correlation between
financial and non-financial measures (Covin, 1991). However, this kind of an approach has
been used rather infrequently in the literature (Rauch et al., 2009). Even apart from the
traditional performance measures some EO studies have, for instance, used new product
development, product innovativeness, and number of patents as dependent variables
(Kemelgor, 2002; Avlonitis and Salavou, 2007; Friskhammar and Hörte, 2007).
2.2.2 Empirical findings on EO-performance relationship
As can be seen from the preceding section, in the EO literature the concept of performance is
very complex as performance measures used in studies ranges in a very wide variety of
measures. Therefore when the EO studies refer to “performance” at a more detailed level this
may actually be profitability or growth or a combination of these. Moreno and Casillas (2008)
pointed out that the quite extensive body of literature on the relationship between EO and firm
performance is dominated by two types of studies. Firstly, there are those presenting general
models describing the characteristics of the said relationship, identifying the moderating and
mediating variables and striving to establish wide-ranging propositions (Covin and Slevin,
1991; Marino et al., 2002; Stam and Elfring, 2008). Secondly, as Moreno and Casillas (2008)
observed, a wide range of studies have attempted to empirically verify partial models of said
relation. This field of research contains, in an isolated and independent manner, some of
31
moderating variables, those related either to environment (Tan and Tan, 2005) or to the firm’s
internal dimensions (Wang, 2008).
Several empirical studies have found that firms with high EO perform better than firms with
lower levels of EO, for instance Keh et al. (2007) pointed out that EO has a crucial role in
improving firm’s perceived performance measured by benchmarking the respondent’s own
business performance against those of competitors based on profitability, sales growth,
market share, and overall performance. Correspondingly, Wiklund and Shepherd (2003)
likewise showed that there is a strong correlation (0.34) between the level of EO and
performance. Here the performance measure was a subjective measure composed of ten
different dimensions of performance: sales growth, revenue growth, growth in the number of
employees, net profit margin, product/service innovation, process innovation, adoption of new
technology, product/service quality, product/service variety, and customer satisfaction. The
relationship between EO and performance has also been tested in specific industries. For
instance, Kraus (2013) showed that within service firms EO is a highly significant predictor
of company performance. As most of the earlier EO studies utilize cross-sectional data there
are also some studies that focus on the relationship in a longitudinal framework. For instance,
Wiklund (1999) pointed out that striving to increase EO may be worthwhile for small firms
since a positive relationship was identified between EO and firm performance and
furthermore the relationship was intensified over time.
As a notable amount of studies have shown that there is a direct relationship between EO and
performance, there is also a number of studies that have shown that EO has no direct effect on
performance. Zahra (2008) showed that EO had no direct effect on performance, but the
interaction between market orientation and EO influenced performance positively. Moreover,
this relationship was dependent on industries as the strength of the interaction effect was
stronger in high-tech industries. The nature of the business environment can also play a role in
the relationship between EO and performance. Kraus et al. (2012) is one of the first studies
investigating the effects of EO on the performance of SMEs during the current global
economic crisis. They showed that only being proactive made a significant direct positive
contribution to performance. On the other hand, the interaction term of innovativeness with
market turbulence was positively related to business performance, whereas the relationship
32
between the interaction term of risk-taking with market turbulence and business performance
was negative. These findings led to the conclusion that under conditions of high uncertainty
or market turbulence, investments in proactiveness and innovativeness and careful
management of the firm’s risk-taking activities would appear wise. Furthermore, Messersmith
and Wales (2013) showed that there was no significant direct main effect of EO on young
firms’ sales growth, but there was an interaction effect between human resource management
and EO on firm performance. This finding indicated that EO has a more positive relationship
with sales growth among firms with higher scores of high-performance work systems
(Messersmith and Wales, 2013).
There is also empirical evidence indicating that the relationship between EO and performance
is not necessarily linear. For instance, even if entrepreneurship is one of the key elements in
organizational success, Bhuian et al. (2005) showed that the relationship was inverted U
shaped, implying that targeting higher and higher levels of EO is not the optimal goal in
certain specific market and structural conditions. Tang et al. (2008) likewise reported a
curvilinear relationship between EO and firm performance. Zahra and Garvis (2000) also
noted that although firms that aggressively pursued EO in hostile international environments
had higher levels of profitability (ROA), as the level of environmental hostility increased, the
increase in the firm’s entrepreneurial activities tended to lead to a situation which ROA fell.
Hence, Zahra and Garvis (2000) concluded that also under excessively hostile environment
the relationship between EO and profitability is not linear. These findings confirm that the
pursuit of the highest possible EO may under some conditions lead to undesired end results.
Growth is one very commonly used tool for measuring the success and performance of firms
(Lappalainen and Niskanen, 2009) and it is also argued to be the dominant goal of the
entrepreneurial organization (Mintzberg, 1973). Lumpkin and Dess (1996) later noted that EO
is, essentially, a growth orientation. Stewart and Roth (2001) likewise referred to
entrepreneurial small business owners as growth oriented. However, despite these widely
acknowledged facts, the relationship between EO and the growth dimension of firm
performance has been studied remarkably little. Covin et al. (2006) argued that EO
effectiveness is appropriately measured using criteria that reflect a firm’s success at
translating entrepreneurial opportunities into growth trajectories. In their study they used sales
33
growth rate as a growth proxy when exploring the relation between EO and growth. Their
study showed that there is a positive relationship between EO and sales growth rate.
Similarly, the findings of Harms et al. (2010) and Stam and Elfring (2008) emphasized the
positive relationship between EO and sales growth and the findings of Eggers et al. (2013)
evidenced the positive influence of EO on revenue growth and employment growth. Li et al.
(2009) showed that when the growth was measured with subjective items there was also a
strong positive correlation between firm growth and the components of EO. Nevertheless, the
findings among studies are not consistent on the positive impact of EO on growth. For
instance, Moreno and Casillas (2008) and Zahra and Garvis (2000) did not find a direct
relationship between EO and firm growth to be significant. However, the results of Moreno
and Casillas (2008) suggested that there is an indirect relationship via the mediating and
moderating role of other variables such as strategy, environment, or resources of the firm.
According to Moreno and Casillas (2008) these results underline the complexity of the
relationship between EO and firm growth.
2.3 Drivers of entrepreneurial orientation
There is general agreement on the important role of entrepreneurship and it is often argued to
be one of the key elements of economic growth, employment generation and productivity
improvements (Grillo and Irigoyen, 2006; Liñán et al., 2011). Given the important role of
entrepreneurship, investigating its determinants has become a key research topic among many
scholars (Masuda, 2006; Grilo and Thurik, 2008; Goethner et al., 2012). Due to the
multidimensional nature of entrepreneurship, a variety of approaches have been used to shed
light on it. Freytag and Thurik (2007) state that the approaches used to explain the
phenomenon of entrepreneurship have been built on many different disciplines such as
economics, sociology, and psychology. Hence many different perspectives, approaches, and
tools are needed to better understand the relevant factors enhancing entrepreneurial activity at
all levels of observation where the phenomenon is present, such as individuals, firms, regions
or industries and even nations (Freytag and Thurik, 2007).
34
2.3.1 Antecedents of entrepreneurial orientation
As mentioned earlier, the amount of EO literature using the construct as a dependent variable
instead of an independent variable is quite limited. After an extensive search in ABI/INFORM
Global and EBSCO -Academic Search Elite databases using the key words “entrepreneurial
orientation” and “antecedent” or “determinant” or “predictor” for studies directly stating that
the aim (or one of them) was to explain EO, it was possible to find a handful of empirical
scholarly articles. Table 1 presents the publications, the variables used in explaining EO, the
context of the study and the main factors found to significantly affect the level of EO. Studies
focusing only on explaining EO and not treating it as a mediating variable are marked with an
asterisk in Table 1 the total number of such studies is nine.
The years of publications alone suggest that the theme is gaining in popularity, as ten out 15
studies were published in 2010 or later. On the other hand, the increase in the number of
studies could also indicate the previously mentioned possible saturation of the field of
traditional EO-performance studies, forcing authors to take novel approaches in the EO
framework.
Scrutiny of the explanatory variables used in earlier studies revealed that the variables can be
roughly divided into four broad categories: i.e. demographic, organizational, environmental,
and psychological. The context of the studies is mainly traditional SMEs, but three of the
studies (Morris et al., 2007; Wood et al., 2008; Meynhardt and Diefenbach, 2012) focus on
EO in rather uncommon contexts such as non-profit organizations, Air Force organizations
and one particular governmental agency.
35
Table 1. Summary of studies treating EO as dependent variable
Publication Explanatory variables Context Main findings: factors
found to explain EO
Entrialgo et
al. (2001)*
-Organizational context of the
firm
- Spanish SMEs - Resources
- Competitive strategy
Salvato
(2004)*
- Individual CEO characteristic
- Family firm issues
- Ownership structure
- Organizational characteristics
- Swedish family
SMEs
- CEO leadership
experience
- Ownership structure
- Value based
compensation
Sciascia et
al.(2006)*
- Environment-related factors
- Organization-related factors
- Individual-related factors
- Market orientation
- Resources
- Swedish SMEs - CEO experience
(negative effect)
- CEO education
- Organizational
informalization
- Value-based
compensation
- Environmental
dynamism and
heterogeneity
- Market orientation
- Resources
Morris et al.
(2007)
- Organizational structure
- Leadership style
- Organizational control
systems
- Environmental turbulence
- Non-profit
organizations
- Transformational and
transactional leadership
- Discretionary
control
- Board structure
Wood et al.
(2008)
- Appropriate use of rewards
- Management support
- Resource availability
- Supportive organizational
structure
- Risk-taking and failure
tolerance
- Air Force
Organizations
in US
- Appropriate use of
rewards
- Management support
- Supportive
organizational structure
- Risk-taking and failure
tolerance
Okhomina
(2010)*
- Need for achievement
- Internal locus of control
- Tolerance for ambiguity
- Supportive environment
- Used auto
dealers in the U.
S.
- Need for achievement
- Internal locus of control
- Tolerance for
ambiguity
- Supportive
environment
Peters et al.
(2010)*
- Employee orientation
- Brand orientation
- Tyrolean hotel
industry
- Employee orientation
- Brand orientation
Altinay and
Wang (2011)*
- Socio-cultural characteristics - Small firms in
London
- Educational attainment
of entrepreneur
- Previous experience of
the owner
Yaghoubi and
Naroei
(2011)*
- Emotional intelligence
- Organizational intelligence
- Industry (not
reported in
more details)
- Emotional intelligence
- Organizational
intelligence
36
Table 1. Continued
Ullah et al.
(2011)*
- Birth order
- Family occupation
- Motivational factors
- Pakistani SMEs - Being the first child,
especially a son
- Having an entrepreneur
in family
- Motivations related to
the exploitation of an
economic opportunity
Qureshi and
Kratzer (2011)
- Environmental turbulence - Small
technology-
based firms in
Germany
- Environmental
turbulence
Zainol and
Ayadurai
(2011)
- Personality traits - Malay family
firms in
Malaysia
- None
J alali (2012) - Environmental dynamics
- Environmental hostility
- Environmental uncertainty
- Iranian SMEs
which target
Eastern
European
countries
- Environmental
dynamics
- Environmental hostility
- Environmental
uncertainty
Meynhardt
and
Diefenbach
(2012)*
- Management support
- Work discretion
- Rewards
- Resource availability
- Germany’s
Federal Labor
Agency
- Influence of
management support
- Work discretion
- Position/ departmental
tenure
Eggers et al.
(2013)
- Financial resources
- Technological changes
- Austrian SMEs - Availability of
financial resources
- Technological changes
The main findings of the studies indicated that the factors explaining EO can indeed be
divided into the abovementioned categories. Demographic variables such as the experience or
education of the CEO (Salvato, 2004; Sciascia et al., 2006; Altinay and Wang, 2011), family
related factors (Ullah et al., 2011) were found to have a positive effect on the level of EO. At
the organizational level factors related to the structure of the organization, management
support, resources, appropriate use of rewards or leadership styles (Entrialgo et al., 2001;
Sciascia et al., 2006; Morris et al., 2007; Wood et al., 2008; Meynhardt and Diefenbach,
2012) were found to have a positive effect on EO. Studies examining the effects of the
environment (Sciascia et al., 2006; Qureshi and Kratzer, 2011; J alali, 2012; Eggers et al., 2013)
showed consistently that the turbulent and dynamic environments tend to affect the level EO.
This confirms the important role of the environmental context in EO research in a similar
manner than e.g. Covin and Slevin (1991).
37
An interesting approach potentially especially relevant in the context of small firms where the
entrepreneur is in a significant role is taken in the studies by Okhomina (2010) and partly
Ullah et al. (2011) as they focus on psychological traits and motivations explaining EO. This
approach demonstrates that these kinds of personality related factors significantly influence
entrepreneurial behavior and hence may also have an indirect effect on firm performance.
Another noteworthy issue is the financial resource availability issue pointed out in a few
studies (e.g. Entrialgo et al., 2001; Salvato, 2004; Meynhardt and Diefenbach, 2012; Eggers
et al., 2013). The relationship between financial resources and EO is an important topic for
further research as the findings may have important practical and policy implications when
considering general means to support entrepreneurship. As the summary showed, the
empirical evidence regarding the drivers of EO is still meager, which justifies broadening the
scope of the examination of the literature to include a rather more general level of
entrepreneurship literature to obtain a better impression of factors affecting entrepreneurship.
2.3.2 Individual level entrepreneurship
Although the phenomenon of entrepreneurship exists at various levels of observations, we
focus here on entrepreneurship at the individual level. Therefore, so as not to exceed the scope
of this dissertation, the examination of the literature must be confined mainly to studies on the
determinants of individual level entrepreneurship.
Given the very nature of entrepreneurship, the angles from it has been approached in the
literature are multiple. The issues related to defining the concept of entrepreneurship likewise
give rise to variation in the ways entrepreneurship is measured i.e. the proxies for
entrepreneurship form a large group of variables.
The proxies for the level of entrepreneurship which have been used in the literature have
typically included entry rate as measured by the number of new start-up business
incorporations and small firm birthrate, as measured by the registration of a firm (Reynolds et
al., 1994) or self-employment rates (Parker and Robson, 2004). Less objective measures
derived from survey questionnaires or interviews have also been used as proxies for
entrepreneurship. For example, the probability of being self-employed (Cowling, 2000),
38
entrepreneurial spirit i.e. preferences for self-employment (Blanchflower et al., 2001;
Masuda, 2006), involvement in entrepreneurship (Grilo and Thurik, 2008), entrepreneurial
intentions i.e. intentions to act entrepreneurially within existing small and newly established
companies (Gird and Bagraim, 2008; Liñán et al., 2011; Goethner et al., 2012) and EO
(Salvato, 2004) have been utilized in studies focusing on the determinants of
entrepreneurship.
Given the usefulness of understanding the factors driving entrepreneurial activities, scholars
have tried to explain the determinants of entrepreneurship for the past three decades (Salvato,
2004). A one common approach to explaining entrepreneurship has been to use general
demographic variables such as level of education, age, gender, wealth or parent’s occupations
as possible determinants. For instance, Blanchflower and Oswald (1998) showed with data
from the UK that family’s wealth or sudden increase in wealth (through inheritance or gifts)
tend to increase a person’s entrepreneurial spirit. The findings of Masuda (2006) and Eggers
et al. (2013) emphasized the significant role of capital. In line with Blanchflower and Oswald
(1998) Masuda found that wealth or access to capital enhances entrepreneurial spirit, and
Eggers et al. (2013) showed that EO was positively influenced by the availability of financial
resources.
The role of family also seemed to have an effect on the level of entrepreneurship, as according
to Blanchflower and Oswald (1998) and Liñán et al. (2011) the presence of other
entrepreneurs in the family tended to have a positive effect on the level of entrepreneurial
intentions.
Gender has also been found to influence the level of entrepreneurial spirit or engagement.
Several studies (Blanchflower and Oswald, 1998; Cowling, 2000; Lin et al., 2000; Davidsson,
2006; Grilo and Thurik, 2008; Berglann et al., 2011) have shown that females typically
exhibit lower levels of entrepreneurship than men. On the other hand the results related to
gender are somewhat inconsistent, as Masuda (2006) showed with J apanese data that female
dummy had a positive effect on the entrepreneurship.
39
Cowling (2000) pointed out that age and education have also been consistently identified as
key determinants of entrepreneurial spirit. Masuda (2006) likewise showed that
entrepreneurial spirit was highest among 25-29 year-old people and being a college or
university graduate tended to raise the level of entrepreneurship. The findings of both
Cowling (2000) and Grilo and Thurik (2008) also emphasize the role of education as a
significant determinant of entrepreneurship. On the other hand the relationship between level
of education and entrepreneurship might be inverse-U shaped, as Berglann et al. (2011)
showed that scientists with a PhD are among the least entrepreneurial of all education groups.
Despite a lack of consensus on many aspects of entrepreneurship, Grilo and Thurik (2008)
noted that on one thing scholars tend to agree: the level of entrepreneurial activity varies
systemically across countries or regions (Cowling, 2000; Blanchflower et al., 2001; Grilo and
Irigoyen, 2006; Minniti and Naudé, 2010). These country or region specific differences can be
traced to differences in factors such as differences in labor market legislation, social security
regimes, tax environment, economic growth, income level, unemployment rate etc. (Reynolds
et al., 1994; Grilo and Irigoyen, 2006; Lasch et al., 2007) or to intrinsic cultural differences.
These cognitive approaches especially have recently attracted considerable interest (Liñán et
al., 2011).
The variation in the level of entrepreneurship has led many scholars to examine the cultural,
social and psychological factors which may be its determinants. Furthermore, there has
recently been re-emergence of interest in personality factors in entrepreneurship research and
a direct call for a psychological approach (Pines et al., 2012). Several studies have
demonstrated that cultural factors such as values, beliefs, and attitudes influence a wide range
of behaviors, including the level of entrepreneurship (Thomas and Mueller, 2000; Freytag and
Thurik, 2007). For instance, Kets de Vries (1977) argued that value systems contribute to
entrepreneurship. Morris et al. (1994) showed that high levels of entrepreneurship can be
explained by such cultural values as freedom, independence, self-sufficiency, individualism,
achievement, and materialism. In a similar manner Davidsson and Wiklund (1997) showed
that prevailing values can be considered important determinants of the level of
entrepreneurship.
40
Therefore, based on the findings in the literature that values can be deemed determinants of
the level of entrepreneurship, and, moreover, as Uy (2011) stated that personal values are at
the very core of the diverse world of human behavior and every decision and action is a
manifestation of those values it is justifiable to further explore the relationship between
personal values and the level of entrepreneurship. Given the plethora of different values in the
literature, the focus of this dissertation is on work related values, since it is reasonable to
assume that the entrepreneur’s behavior is a reflection of the factors he values the most.
2.3.3 Organizational characteristics
Studies explaining EO by organizational characteristics have shown that the structure of the
organization, management styles, compensation mechanisms, etc. may have an effect on the
level of EO (Salvato, 2004; Morris et al., 2007; Meynhardt and Diefenbach, 2012). But on the
other hand, when the focus is on EO in very small firms where the organizational structure is
typically very low, the most relevant organizational characteristic explaining the level of EO
may be the firm’s financial resource base. Eggers et al. (2013) showed that in the case of
Austrian SMEs the availability of financial resources had a positive impact on EO and on a
more general level Blanchflower et al. (2001) and Masuda (2006) showed that wealth or
access to finance tend to increase the entrepreneurial spirit. Therefore it is relevant to discuss
the role of finance behind the EO.
Reviewing the definitions relating to innovativeness and risk-taking, it is easy to notice that
R&D and new technologies are closely related to innovativeness whereas heavy borrowing,
and/or committing large portions of corporate assets are related to risk-taking. As these
abovementioned actions presuppose liquidity or financial slack in the form of cash or the
ability to borrow it, it seems plausible that a firm’s financial resources and profile may
support EO.
The relationship between liquidity and entrepreneurial action is not clear as there are different
views on this in the literature. Scholars like Penrose (1959) argued that slack enables
management to act entrepreneurially and seize the perceived growth opportunities. Slack
41
resources are also seen to support organizational innovation. According to this view financial
slack could play a positive role behind EO.
Another view is that high liquidity has a negative effect on management’s willingness to act
entrepreneurially. According to Bradley et al. (2011) “resource slack entices managers to be
administrative rather than entrepreneurial in their management approach.”. In a similar
manner a substantial resource base may cause risk aversion among managers as they try to
safeguard their present positions. This view is also shared by George (2005), who argued that
a significant financial resource base may decrease managers’ willingness to exploit new
entrepreneurial opportunities. To highlight the negative role of financial resources Bradley et
al. (2011) stated that the most recent research has recognized that resource constraints can
trigger entrepreneurial behaviors. One aspect related to financial slack was the ability to
borrow, although firm may be able to borrow funds management may be reluctant to do so.
This is known as a conservative financial management or policy, which can be defined as a
policy of low leverage implying that managers prefer to keep debt ratios low for the sake of
risk reduction (Marchina and Mura, 2010). Conservative financial management has been
noted to be an important issue especially in the small-firm context (Covin and Slevin, 1989)
and moreover Miller (2011) mentioned the possible limiting role of conservative financial
structures on EO and what types of financial structures support it. Therefore it is appropriate
to include the role of a firm’s financial characteristics in the context when examining the
antecedents of EO.
2.3.4 Work values
Owners of small businesses have a strong influence on the firm’s strategy, actions, and
responses to changes in the surrounding business environment. This central role of the owner-
manager has been recognized in the small business and entrepreneurship literature, and
empirical evidence also suggests that entrepreneurs are a heterogeneous group of individuals
in terms of professional expectations or values. Scholars have noted that human values are at
the very heart of the complex world of human behavior and every decision and action is a
manifestation of those values (Warr, 2008; Gahan and Abeysekera, 2009; Kaasa, 2011; Uy,
2011). Similarly, according to Gahan and Abeysekera (2009), it has been shown that among
42
the many types of life values, work values are considered to be significant determinants of
individuals’ work-related behaviors. Hence the work values of the entrepreneur are most
likely to be key determinants of entrepreneurially oriented behavior.
Ros et al. (1999) argued that work values are a specific expression of general values in the
work setting and refer to what a person in general wants out of work. Both Ros et al. (1999)
and Lyons et al. (2006) defined work values as generalized beliefs about the desirability of
certain attributes of work or behavior (e.g. working with other people) and work-related
outcomes or end-states (e.g. high pay). Work values have been found to be relatively stable
and enduring over time (Rokeach, 1973; Meglino and Ravlin, 1998). They are hierarchically
ordered in the individual’s mind (Lyons et al., 2010) and underlie people’s ideas of what is
important to them when making important work-related decisions (Ros et al., 1999).
Despite a plethora of different labels, definitions, and work value typologies, there appears to
be a consensus on at least two or three fundamental types of values (Ros et al., 1999; Kaasa,
2011). A trichotomous classification of values was introduced by Elizur (1984) and according
to this values can be divided into the following types of work values: (1) intrinsic or self-
actualization values, (2) extrinsic or security or material values, (3) social or relational values.
The intrinsic values pertain to the inherent psychological satisfactions of work such as
interest, responsibility, challenge, variety, self-development or intellectual stimulation.
Secondly, extrinsic values are related to high income, material possessions, benefits such as
generous holidays, job security and comfort through good working conditions (e.g. Elizur,
1984; Vinken, 2007; Lyons et al., 2010). Third, social values are related to affective
interpersonal relations: belonging, acceptance, a fair supervisor (Kaasa, 2011). Ros et al.
(1999) argued that there should also be a fourth distinctive type of values and they suggested
that the fourth type of values, namely status or prestige values, should be concerned with
power, achievement, advancement of status and recognition.
In the entrepreneurship and small business literature studies explicitly measuring work values
are mostly limited to using work values as a predictor of career choice. If we look at some
studies focusing on the work values of business founders versus those embarking on other
43
careers, the results reveal that typically business founders exhibited higher levels of intrinsic
work values (Fagenson, 1993). These findings could imply a positive relationship between
intrinsic work values and the level of entrepreneurship. This issue needs further investigation
with more precise proxies for entrepreneurship. Furthermore, some studies have shown that
strategic business choices regarding issues such growth or adaptivity vs. rigidity, reflect the
work values of managers (Smith and Miner, 1983; Lafuente and Salas, 1989; Singh, 1989).
44
3. RESEARCH DESIGN AND METHODS
3.1 Overview of the research design
This dissertation includes five separate articles. Each of these focuses on the main themes of
the dissertation from different aspects. Table 2 summarizes the datasets, sources and research
methods of this dissertation.
Table 2. Research design
Article Data Analysis methods
1. Entrepreneurial orientation:
growth and profitability of
Finnish small and medium-sized
enterprises
Cross-sectional survey data from
2009, number of respondents 194,
response rate 19%. Income statement
and balance sheet data between 2004
and 2007, obtained from commercial
database Voitto+.
Principal component analysis,
linear regression analysis and
two-way analysis of variance.
2. The impact of global economic
crisis on SMEs – does
entrepreneurial orientation
matter?
Cross-sectional survey data from
2009, number of respondents 194,
response rate 19%. Income statement
and balance sheet data between 2004
and 2009, obtained from commercial
database Voitto+.
Principal component analysis and
linear regression analysis.
3. Does international
entrepreneurship make firms
more vulnerable? – the impact of
global economic crisis on Finnish
SMEs
Cross-sectional survey data from
2008, number of respondents 255,
response rate 22% and cross-sectional
survey data from 2009, number of
respondents 194, response rate 19%.
Income statement and balance sheet
data between 2006 and 2010, obtained
from commercial databases Voitto+
and Amadeus.
Principal component analysis and
linear regression analysis.
4. Entrepreneurial orientation in
small firms – values-attitudes-
behavior approach
Cross-sectional survey data from
2009, number of respondents 194,
response rate 19%. Income statement
and balance sheet data between 2005
and 2009, obtained from commercial
database Voitto+.
Structural equation modeling with
partial least squares approach.
5. What drives EO in small firms?
Roles of the owner-manager and
financial conditions
Cross-sectional survey data from
2009, number of respondents 194,
response rate 19%. Income statement
and balance sheet data from 2009,
obtained from commercial database
Voitto+.
Principal component analysis and
linear regression analysis.
45
3.2 Data collection and methods of analysis
The survey data used in all five articles was collected during spring 2009 by means of a pre-
tested structured survey questionnaire. The questionnaire contained items related to a fairly
wide variety of themes from legal environment to entrepreneurship and the effects of the
recent global downturn. The results of this survey related to other themes than those addressed
here were utilized in other doctoral theses. The questionnaires and cover letter, including an
assurance of the confidentiality of the survey, were mailed to 1,026 randomly selected firms
with annual sales turnover between 1 and 10 million Euros. As prior research considers CEOs
and founders the “single most knowledgeable and valid information sources” (Lechner et al.,
2006, p. 525), the questionnaires were addressed directly either to the owner-manager or to
the CEO of the firm, following a key-informant approach. Two weeks after the first mailing
round we sent reminder letters to firms which had not yet responded. After these two mailing
rounds we received responses from 193 firms, yielding a satisfactory response rate of 19%
(193/1,026). It was possible to connect the financial statements of the respondents with the
survey results yielding a large dataset containing the subjective responses from the owners or
CEOs and objective income and balance sheet based figures, hence we had at our disposal a
many sided and unique dataset.
Table 3 presents basic descriptive statistics (means, standard deviations, minimum and
maximum values) of the firms in our dataset. The firms were mainly in the mature stage as the
average age was 20 years and the youngest firms were also four years old, hence our sample
does not contain firms in the most critical stage of the lifecycle. The firms are small both in
terms of sales and number of employees as, for instance, the average annual sales is around
two and a half million Euros. One interesting pattern is clearly visible in the profitability
figures as there are remarkable decreases from 2007 to 2009, hence the effect of the economic
crisis is clearly visible in our sample. The average EO was slightly above the value of three
(out of five) and there also seems to be deviation in the level of EO among Finnish SMEs.
Averages of work related values reveal that in their work the entrepreneurs value most highly
those aspects which give them psychological satisfaction. Almost as important as the
immaterial gains from the work seems to be the material aspect. Extrinsic values scored
nearly as high as the intrinsic values, suggesting that the benefit, salary, and job security are
also very important to the entrepreneurs. Moreover, the social relationships etc. and status and
46
power seem to be collectively clearly less important factors among the things the work offers
the entrepreneurs. One conclusion could be drawn from this pattern of how the values divided
into two separate groups. It seems that the entrepreneurs in SMEs are really doing their jobs
for themselves, as they do not attach much importance to having either power of influence
over other people, public acknowledgement or social relationships with other people.
Table 3. Descriptive statistics
Variable Mean Std. dev. Min Max
Firm age 20.00 12.00 4.00 107.00
Sales (million €), avg. 2005-2009 2.48 1.84 0.4 9.79
Number of employees 2009 17.98 20.91 1.00 150.00
Return on total assets 2009 (%) 8.94 18.14 -83.72 59.21
Return on total assets 2008 (%) 15.13 15.69 -36.00 71.46
Return on total assets 2007 (%) 19.63 13.54 -2.83 64.84
EO 3.32 0.69 1.44 4.89
Extrinsic work values 4.01 0.76 2.00 5.00
Intrinsic work values 4.24 0.53 2.40 5.00
Status work values 3.34 0.83 1.00 5.00
Social work values 3.11 0.84 1.25 5.00
Regarding the methods of analysis this dissertation mainly relied on principal component
analysis, multiple linear regression analysis and structural equation modeling with the partial
least squares (PLS) approach using SmartPLS 2.0 software (Ringle et al., 2005). Following
are brief and simple descriptions of each of the methods utilized.
Hair et al. (1998) described principal component analysis as a statistical approach that can be
used to analyze interrelationships between a large number of variables and to explain these
variables in terms of their common underlying dimensions. The objective is to find a way of
condensing the information contained in a number of original variables into a smaller set of
variables with a minimum loss of information. By providing an empirical estimate of the
structure of the variables considered principal component analysis is a highly appropriate
method for creating summated scales to represent latent constructs such as EO.
47
Linear regression analysis according to Hair et al. (1998) is the appropriate method of
analysis when a single metric dependent variable is presumed to be related to metric
independent variable(s). The objective of this method is to predict the changes in the
dependent variable in response to changes in the independent variable. Thus it is a suitable
technique, for instance, when the aim is to study the relationship between EO and profitability
or growth.
Structural equation modeling is a technique that allows separate relationships for each of a set
of dependent variables. It is the most appropriate and most efficient estimation technique for a
series of separate multiple regression equations estimated simultaneously and allows several
variables to be used for a single independent or dependent variable (Hair et al., 1998). PLS is
an appropriate structural equation modeling method in the context of this dissertation since
PLS has the ability to produce more stable estimators than covariance-based structural
equation modeling with small sample sizes and it is also able to work with indicators that do
not follow the normal distribution (Harms et al., 2010).
3.3 Measures used in the dissertation
The measures related to the main themes of this dissertation are widely used and well
established in the literature. All the key items used here are listed in the Table 4 and discussed
below. The roots of EO are in the early 1980’s, when Miller and Friesen (1982) developed a
scale to measure levels of EO, the attributes that are now, 30 years later, used for measuring
EO are generally based on Miller’s and Friesen’s scale refined by Covin and Slevin (1989).
We utilized these nine items to capture the three dimensions of EO. However, the items in this
dissertation were adapted slightly to be more appropriate to the context of small enterprises in
Finland. Knight (1997) has shown that this scale performs well in terms of both reliability and
validity and also possesses a unique factor structure when tested in multilingual settings. It is
therefore suitable for measuring the construct of entrepreneurship in different countries
although it originated in the U.S.
48
In this dissertation the work values were measured on a scale adapted from three very similar
scales used by Lyons et al. (2006), Lafuente and Salas (1989), and Elizur (1984). The
measure included 19 items capturing the characteristics of intrinsic work values, extrinsic
work values, status work values and social work values. All items were assessed on a five-
point Likert scale with the anchors 1 =not at all important, 5 =of utmost importance.
49
Table 4. The key items used in the dissertation
CONSTRUCT DIMENSION ITEM
E
O
Innovativeness In our company, new ideas come up all the time.
Innovativeness Continuous renewal and innovation are important for our company
Innovativeness Lately we have launched many new products/ services.
Innovativeness We invest heavily in developing new products, services and business
practices.
Proactiveness Our company often acts before the competitors do.
Proactiveness We aim at being at the forefront of development in our business sector.
Risk-taking We prefer the cautious line of action even if some opportunity might be
lost that way. (Reversed)
Risk-taking Bold action is necessary to achieve our company’s objectives.
Risk-taking
In uncertain situations we are not afraid to take substantial risks.
(Covin and Slevin, 1989)
W
o
r
k
v
a
l
u
e
s
Extrinsic I can get a secure income from the business
Extrinsic I can get a sufficient monetary reward for my work
Extrinsic I can obtain wealth through the business
Intrinsic The work offers challenges where I can apply my skills
Intrinsic The work is inspiring
Intrinsic I can learn or create something new
Intrinsic I can affect the organization’s success
Intrinsic I can enjoy my work
Status I can manage and organize other people’s work
Status The work is respected by others
Status I can advance in my career
Social I can work in a business owned by my family
Social The work has an impact on the society
Social I can offer employment to others
Social I can leave a solid business to the next owner generation
(Elizur, 1984; Lafuente and Salas, 1989; Lyons et al., 2006)
50
Table 4. Continued
CONSTRUCT DIMENSION ITEM
E
f
f
e
c
t
s
o
f
E
c
o
n
o
m
i
c
D
o
w
n
t
u
r
n
The downturn has decreased our sales
The downturn has decreased our profitability
The crisis makes our operations harder overall
Customers have canceled their orders
We have not been able to pay dividends
We have cut down the principal owner’s salary
It has been hard to get financing
Lack of financing jeopardizes our future
The crisis increases the risk of bankruptcy
We have canceled investments due to lack of financing
We have delayed our investments
Our interest margin has been raised
We have dismissed personnel
We have laid off personnel
We have outsourced our operations
We’ve had to lower prices
Competition has become more aggressive
Our customers’ terms of payment have become longer
Our credit losses have increased
Our suppliers have tightened their payment terms
(Geroski and Gregg, 1993)
The items measuring the effect of the economic crisis on firm’s operational level were
adapted from the scales used by Geroski and Gregg (1993). Their survey contained 32
detailed questions. The questions were divided into three main sections: “effects of the
recession”, “human resource management” and “company organization”. The aim was to
ascertain how severely the firms were affected by the recession; how much the recession
51
affected their trading position, pay arrangements, their workforce composition and their
potential for financing (credit limits by banks). In our questionnaire some of the original items
were omitted as they were not deemed suitable for small Finnish firms. The final measure
included 20 items all assessed on a five-point Likert scale with the anchors 1 =totally
disagree, 5 =totally agree
The annual balance sheets and income statements were obtained from commercial databases
namely Amadeus and Voitto+. This information was used for calculating measures of
financial performance. Several different financial performance measures are included in the
analysis representing sales growth, size of the firm (total assets, turnover, number of
employees), liquidity (quick ratio, current ratio), profitability (return on assets, profit margin),
risk level etc. Most of the performance measures above are frequently used in the EO
literature as discussed earlier, and therefore their use in this dissertation is justified to obtain
comparable results. Liquidity is not used as a performance measure so often, but as Carton
and Hofer (2006) stated, it is also an appropriate measure of performance as it refers to the
ability of a firm to meet its financial obligations in a timely manner. Moreover, they remarked
that liquidity measures represent only one of the dimensions of the performance and therefore
are not alone sufficient to represent the construct of performance. Carton and Hofer (2006,
p.72) also noted that “the critical performance issue relative to liquidity is whether the
organization has or is developing enough readily accessible capital to continue to operate.”. In
this light it seems that the liquidity dimensions of performance are especially relevant during
economically turbulent times, when the income flows are decreasing but still the most
significant costs such as labor costs, rents or interests are harder or slower to cut down.
Moreover, Lugovskaya (2010) showed that, especially in the case of SMEs, liquidity is a very
important factor as gaps in cash flows can make it particularly vulnerable.
3.4 Issues related to surveys
Although in many cases survey questionnaires are the only way to obtain the desired data on a
larger scale there are also some issues and biases related to the technique which should be
acknowledged. Generally, it is assumed that when people fill out a survey questionnaire, their
answers are based on the substantive meaning of the items to which they respond. However, it
52
has been known for a long time that people’s answers are also influenced by content irrelevant
factors (Baumgartner and Steenkamp, 2001). This means that all inventories and
questionnaires are prone to possible distortion of the data. This problem is due to an
individual’s particular pattern of responding to the items. Such behavior patterns are of two
general types: response styles and response sets. The response style means that the individual
tends to select disproportionately a particular response category regardless of item content.
Whereas response sets mean that the individual responds to item content in such a way as to
portray himself in other than a true light (e.g. social desirability) (O’Neill, 1967). For
instance, in the case of EO one manager may respond to the questionnaire items with the
firm’s desired strategies, while another may use its emergent strategies (Dess et al., 2011).
We also conducted a test for non-response bias by comparing the early (first-round)
respondents with the late responders (second-round) on the assumption that there were no
differences between early and late responders (Armstrong and Overton, 1977). No significant
differences were found between these groups in the distributions of the sum variables.
Another test for the representativeness of our data was the comparison of responding and non-
responding firms in terms of size; the information was retrieved from the Voitto+database for
the full sample of 1,026 firms. The size distributions of non-responding and responding firms
turned out similar (Chi
2
=1.62).
The utilization of self-reported data from a single informant may entail a risk of common
method bias (Podsakoff et al., 2003). However, the owner-manager is considered to have the
best information about the strategic vision and managerial practices, which would be very
hard to measure without some degree of subjectivity. The measurement of work values
especially necessitates subjective evaluation and reporting. Furthermore, entrepreneurship
scholars frequently use self-reports which have also been shown to be reliable (Chaganti et
al., 2002).
53
4. SUMMARY OF THE ARTICLES AND RESULTS
This chapter introduces the articles composing Part II of the dissertation. The articles, their
overall objectives and main findings are introduced in a condensed manner.
The overall objective of this dissertation is, on the one hand, to explore the implications of EO
for a firm’s performance and coping with harsh economic conditions and, on the other hand,
to examine which entrepreneur and firm specific factors may be the antecedents of EO. The
first three articles focus on the performance implications of EO and the last two take EO as
dependent variable. The articles are now presented in the order of appearence: Article 1 starts
by examining how EO affects a firm’s profitability, growth, and risk level. Article 2 then
expands the examination of the performance implications of EO by examining at operational
level the role of EO and the impact of the economic crisis on SMEs. Article 3 concentrates on
the dimensions of EO and on the firm’s degree of internationalization and moreover examines
how these factors affect a firm’s financial performance during a period of recession. Article 4
utilizes the value-attitudes-behavior framework to investigate the relationship between an
entrepreneur’s work-related values and entrepreneurially oriented behavior. Finally, Article 5
continues with this same theme but adds firm specific financial conditions and the experience
of the entrepreneur into the analysis when examining the antecedents of EO.
4.1 Entrepreneurial Orientation: Growth and Profitability of Finnish Small
and Medium-Sized Enterprises
4.1.1 Overall objective
The purpose of the Article 1 was to examine the relationship between EO and firm
performance. In this article we tested whether the EO has a positive influence on firm’s
profitability and growth. Second, in this article it was investigated how the different
dimensions of EO are related to firm’s level of actual riskiness measured by financial
statement based figures. The context of economic crisis was not yet present in this study as
the latest financial statement was from the year 2007.
54
4.1.2 Main findings
As analysis method linear regression analysis was used and one of the independent variables
was EO variable. The findings of this article showed that the EO does not have an impact on
firm’s profitability measured by return on assets. Hence, here our findings are somewhat
contradictory to previous literature. On the other hand, our results showed that the EO has a
positive effect on firm’s actual growth level. Our results did not show significant results when
we were measuring the impact of EO on one year growth but the relationship turned to be
significant when the dependent variable was five year average of sales growth. Hence, the EO
seems not to be a “quick fix” rather it has its effect in longer run. The result supports the
general anticipation that EO is fundamentally pursuing growth for firms. One of the findings
of this article was the positive link found between the risk-taking dimension of EO and the
actual accounting figures based riskiness of the firm. Firms which had higher levels of risk-
taking propensity showed also higher levels in the variation of profitability. Moreover, our
interaction results here indicated that firms with higher level of strategic risk-taking produces
higher level of profitability as well. This finding implied that the risk-return relationship is
found also among small, non-listed companies.
4.2 The impact of global economic crisis on SMEs – does entrepreneurial
orientation matter?
4.2.1 Overall objective
Article 2 investigated if there are some firm-specific intrinsic strategic characteristics which
may enable firms to cope better with harsh economic conditions in the surrounding
environment. This article focused on EO and its role in how a firm’s financial performance
and operations related to sales and profitability, short and long-term financing, personnel,
competitive situation and terms of payment are affected by the ongoing financial crisis.
55
4.2.2 Main findings
The article showed that different dimensions of EO have opposite effects on a firm’s financial
performance during a time of recession. The results were obtained by linear regression
analysis. Among the independent variables one variable represented risk-taking and another
innovativeness and proactiveness. Those firms which are habitually more willing to take risks
were affected more dramatically by the crisis than less risk-prone firms. Similarly, firms
exhibiting higher levels of innovativeness and proactiveness performed better during this
period.
As regards the relationship between the dimensions of EO and the manager’s perceived
impact of the crisis on the firm’s operations, the article demonstrates that the overall impact of
the recession was more detrimental to firms with more risk-taking propensity. These risk-
taking firms had problems especially in operations related to both short and long-term
financing. For instance, firms have been unable to pay dividends, raising finance has been
hard and interest rate margins had risen, leading to a situation where firms had to delay
investments. Moreover the managers felt that the lack of financing was detrimental to the
future of the firm.
4.3 Does international entrepreneurship make firms more vulnerable? – the
impact of global economic crisis on Finnish SMEs
4.3.1 Overall objective
Article 3 focused on how different dimensions of EO and a firm’s degree of
internationalization affect financial performance during times of turbulence. It has been
pointed out in the literature (e.g. Yusuf, 2002) that the relationship between EO and a firm’s
performance needs to be scrutinized more when the business environment exhibits great
amounts of uncertainty. The overall objective of this paper was to increase the understanding
of how degree of internationalization, risk-taking, innovativeness and proactiveness are
related to a firm’s performance measured by various key ratios.
56
4.3.2 Main findings
In this article we used linear regression analysis to test how Finnish small and medium-sized
firms were affected by a global economic crisis and if they could mitigate the negative effects
of the economic turmoil by being more entrepreneurially oriented. We moreover tested how a
firm’s international activity affects its performance during the different stages of an economic
crisis. Our main findings showed that the stage of a recession may determine how different
strategic choices affect a firm’s performance. The findings of this study demonstrated that
risk-taking is detrimental to profitability and liquidity during the first stage of an economic
crisis, whereas innovativeness and proactiveness can mitigate the negative effects of the crisis
on liquidity. Interestingly, the firm’s level of internationalization had effects similar to those
of risk-taking. During the first years of the crisis firms which were internationally active
suffered more and when the turmoil was abating the international activity drove profitability
up again. The results also highlighted the contradictory nature of the EO dimensions, which is
an interesting finding relating to the ongoing discussion on the nature of the entire EO
construct.
4.4 Entrepreneurial Orientation in small firms – a values-attitudes-behavior approach
4.4.1 Overall objective
Article 4 focused on the values and value systems of entrepreneurs and their effects on an
entrepreneur’s attitudes and his/her behavior. The main aim of this article was to increase the
understanding of the antecedents of entrepreneurially oriented behavior. In this article we
utilized the values-attitudes-behavior framework to examine how an entrepreneur’s work
related values affected his attitudes towards growth and survival and finally how the values
and attitudes shaped the entrepreneurially oriented behavior.
4.4.2 Main findings
This article demonstrated that the values-attitudes-behavior framework is a functional
construct, also in the context of entrepreneurship. Psychological antecedents such as work
values affected entrepreneurs’ attitudes towards growth and survival and also their actual
57
behavior. The results obtained using structural equation modeling with the PLS approach
showed that entrepreneurs with higher intrinsic work values behaved more entrepreneurially.
The finding implies that entrepreneurs who value challenges, self-development or intellectual
stimulation are more innovative, proactive and willing to take risks. Attitudes related to
growth also had a positive effect on EO. One very interesting finding was that attitudes
related to growth were found to be a mediator between intrinsic work values and
entrepreneurial behavior. This finding implied that the mechanisms found with general values
are also valid in the context of work values as intrinsic work values had an indirect effect on
entrepreneurial behavior through the more concrete growth attitudes.
4.5 What drives EO in small firms? Roles of the owner-manager and financial
conditions
4.5.1 Overall objective
Article 5 expanded the investigation of the antecedents of EO, started in the previous article.
Besides psychological factors such as the personal values of the owner-manager this study
also included factors such as the business founding experience of the entrepreneur and the
firm’s financial characteristics such as financial slack and conservatism in the search for
factors affecting the level of EO.
4.5.2 Main findings
The main findings of this study obtained by linear regression analysis show that the main
drivers for EO in small firms were the personal work related values of the owner-manager and
his/her business founding experience. The approach in this study was somewhat simpler than
in the preceding study as in this article we tested only the direct effects. As in the preceding
article intrinsic work values were found to have a positive effect on EO. Extrinsic or material
values related e.g. to benefits, job security, and comfort, had a negative effect on EO. These
findings also appear plausible if we look at both the definition of the values and compare it to
the definitions of EO. It was entirely to be expected that some linkage that was found.
Valuing job security and comfort especially may reduce the willingness to take risks or act in
58
innovative ways. Values related to status, power, and influence also enhanced the level of EO.
In this case the result may imply that those individuals who value status, power, and perhaps
public acknowledgement, are more willing to take risks and to innovate. As reported
elsewhere in the entrepreneurship literature (Salvato, 2004) the entrepreneur’s prior
experience has a positive effect on the level of EO. It was surprising that financial resources
turned out not to have an effect on EO: In this respect our findings differed from those of
Eggers et al. (2013), who showed that financial resources have a positive effect on EO.
4.6 Summary of overall results
The purpose of this section is to give a reader a clear idea of the most relevant relationships
found to be significant in the framework of this dissertation. The Figure 4 sums up all the
relevant findings of the five articles forming the second part of the dissertation. The ovals in
the figure illustrate the key concepts of the dissertation, EO and its dimensions they behaved
in our data, risk-taking as one separate factor whereas innovativeness and proactiveness
merged into one factor. Merging the two dimensions of EO into one has not usually been
done in earlier studies as they generally treat EO as a multidimensional or unidimensional
construct (Rauch et al., 2009). The merging of the innovativeness and proactiveness
dimensions into one factor can be nevertheless justified, as Miller (2011) argued that
combining the dimensions of EO may be warranted when the components are highly
correlated, as in this case. Similarly, previous studies have also found that innovativeness and
proactiveness are often highly correlated (Wang, 2008; Li et al., 2009; Kraus, 2013) whereas
the correlations between risk-taking and innovativeness and proactiveness are low (Kraus et
al., 2012; Lechner and Gudmundsson, 2012). The solid boxes are the performance indicators,
which were used in the analysis as dependent variables and the boxes with broken lines are
factors used to explain EO. Solid arrows indicate significant positive relationships whereas
broken arrows represent significant negative effects.
When studying EO in the context of small and medium-sized enterprises the main finding was
that EO has a positive effect on a firm’s growth over a longer time period here the findings
were in line with those of earlier studies (e.g. Covin et al., 2006; Harms et al., 2010).
Contrary to earlier finding in the literature, EO has no impact on the profitability of the firm.
59
This finding highlights the concern related to combining performance measures of different
performance dimensions into one single measure, as different dimensions like growth and
profitability may collide, and it is moreover hard to draw more specific conclusions about the
role of EO if using only a one combined performance measure.
When the focus is on the dimensions of EO and their performance implication, the results
revealed the conflicting role of risk-taking and innovativeness-proactiveness. The conflict is
most obvious in the case of liquidity, as risk-taking tends to decrease it while innovativeness-
proactiveness has the opposite effect. Furthermore, risk-taking was negatively related to both
profitability and growth. Similarly, risk-taking had a negative effect on how managers felt the
crisis had impacted their firms. As the negative role of risk-taking is emphasized by the
results it is worth remembering that these effects were captured during the economic crisis
and that the role of risk-taking may be highly context reliant. The contradictory effects of the
EO dimensions on performance have also been reported in earlier studies hence the results of
this dissertation are in line with earlier findings. For instance, Lumpkin and Dess (2001) and
Lechner and Gudmundsson (2012) showed that the separate dimensions of EO may have
conflicting effects on performance.
60
Figure 4. Summary of significant relationships in the articles
After the performance implications of EO the second main theme in this dissertation was the
examination of the antecedents of EO. Here a set of work related values and attitudes, prior
experience and firm’s financial characteristics were used to explain the EO that can be
considered to be behavior. The financial characteristics were omitted from Figure 4 because
they did not have an impact on EO hence this finding was in contrary to the findings of
Entrialgo et al. (2001) and Eggers et al. (2013).
Similarly to Salvato (2004) and Altinay and Wang (2011) the results of this dissertation
showed that the prior entrepreneurship experience of the entrepreneur promotes the level of
EO, suggesting that the more experienced entrepreneurs exhibit more innovative, proactive,
and risk-taking behavior. Intrinsic and status values like the attitudes towards growth had the
same kind of impact on EO. Similar findings can also be found in earlier studies as the
Innovativeness
-proactiveness
Risk-taking
Growth
Profitability
Sales and
Size
Liquidity
Entrepreneur’s
experience
Status work
values
Extrinsic work
values
Intrinsic work
values
Growth attitude
Perceived
impact on
short/long
term
financing
=negative effect
=positive effect
Perceived
overall
impact of
the crisis
61
intrinsic work values resemble rather closely the need for achievement factor that was found
to positively affect the level of EO (Okhomina, 2010). On the other hand, extrinsic values
which are linked e.g. to benefits, job security, and comfort tend to decrease the propensity to
behave entrepreneurially.
Interestingly, the results also showed that the attitudes related to growth mediated between
intrinsic work values and entrepreneurial behavior. This indicates that the mechanisms found
with general values are also valid in the context of more specific values as values have an
indirect effect on behavior through the more concrete and domain-specific attitudes.
The contribution and the implications of these results and the whole dissertation are discussed
in the following chapter.
62
5. CONCLUSIONS
The main aim in this dissertation was to explore the performance implications of EO during a
period of economic crisis causing extraordinary turbulence to the business environment. The
second aim was to explore the factors determining the level of EO. In the latter aim the focus
was mostly on entrepreneurs’ work related values as work values are often viewed as a crucial
determinant of individuals’ work related behavior.
This chapter gives answers to the research questions set in the introductory chapter and
presents the theoretical and practical contributions of the dissertation. It also discusses the
limitations of the dissertation as well as questions that were not thoroughly addressed, giving
some guidelines and suggestions for future research.
5.1 Answering the research questions
This section provides more detailed answers to the research questions of this dissertation.
First, answers will be provided to the two sub-research questions. After that the main research
question of the dissertation “What are the main drivers and performance implications of EO
for SMEs in time of economic crisis?” will be answered.
The first sub-question was “What are the performance implications of EO and the role of EO
in how firms are treated by the crisis at operational level?” The first three articles were
aimed to shed light on this question.
The Article 1 focused on the implications of EO on the dynamics of profitability and growth
and provided evidence that EO is positively related to firm performance in general. Similarly
to the findings of Harms et al. (2010) results of this article indicated that EO has a significant
and positive effect on a firm’s growth. Furthermore, the results also revealed an interesting
pattern as there was no significant relationship between EO and growth rate over one year, but
instead EO had a positive effect on the five-year-average growth rate. This implies that EO
cannot be seen as a “quick fix” that instantly affects the performance of the firm.
63
Another interesting finding was a relationship between the risk-taking dimension and the risk
measure based on financial figures. Firms exhibiting the highest levels of strategic risk-taking
had the highest levels of financial risk. Moreover, profitability seemed also be related to these
two risk measures as the risk level was decidedly high in the category of the most profitable
firms. In light of these findings it can be concluded that EO definitely has implications for
growth, especially in the longer term, suggesting that an investment in EO today is an
investment for the future. Furthermore, the risk-taking component of EO significantly
determines the objective risk profile of the firm.
The second article approached the research sub-question from whether EO can mitigate the
negative effects of economic crisis on a firm’s performance and operations. The findings of
the article 2 showed that the innovativeness-proactiveness and risk-taking dimensions of EO
have opposite effects on a firm’s financial performance during times of economic crisis. The
risk taker firms were hit harder by the crisis and on the other hand the firms exhibiting higher
levels of innovativeness and proactiveness performed better. Hence this dissertation showed
that the dimension of EO may have conflicting effects and this finding is consistent with those
of earlier studies (Lumpkin and Dess, 2001; Lechner and Gudmundsson, 2012).
The relationship between the dimensions of EO and the manager’s perceived impact of the
crisis on the firm’s operations emphasized the negative role of risk-taking. The overall impact
of the economic crisis was more detrimental for risk-taking firms. Similarly, these risk-taking
firms had problems related to finance.
For this issue there is no single right answer, rather trying to answer this question raised even
more questions relating to the nature of the EO construct and to the correct approach to
addressing the concept. If EO is considered a reflective construct, then the answer to the
question might be that in the case of the economic crisis pursuing high levels of EO may lead
to adverse outcomes in issues related to finance, but on the other hand the positive effects on
revenues might offset these problems. The overall effect of EO may still be positive despite
the conflicting dimensions.
Article 3 addresses the sub-question by focusing on how the dimensions of EO and the firm’s
level of internationalization affect firm’s financial performance. The results showed the
64
context dependence of the performance implications of both the dimensions of EO and the
firm’s level of internationalization. The findings showed that risk-taking is detrimental during
the first stage of an economic crisis, whereas innovativeness and proactiveness can
counterbalance its negative effects. The firm’s level of internationalization had effects similar
to those of risk-taking. During the first years of the crisis firms which were internationally
active suffered more and when the turmoil abated the international activity increased
profitability
As the phase of a crisis determined how different strategic choices affect a firm’s
performance, the results emphasize the importance of a firm’s ability to adjust its actions and
strategic choices as much as possible. Results here support the view of Zahra and Garvis
(2000) that striving to pursue as high EO as possible may lead to undesired end results under
certain conditions.
The second sub-question was “What are the main drivers of EO in SMEs?” Articles four and
five were intended to answer this question.
The Article 4 approached the sub-question by focusing on the roles of entrepreneurs’ work
values and goal related attitudes as determinants of EO. The findings showed that an
entrepreneur’s intrinsic work values related to the psychological satisfaction offered by the
job and an individual’s attitudes towards growth are significant determinants of EO.
Moreover, the growth attitudes were found to have a mediating effect between values and EO.
The finding showed that those entrepreneurs who value the challenges and intellectual
stimulation offered by the job behave more entrepreneurially i.e. they are more innovative,
proactive, and risk-taking when running their firms. This result also showed that frameworks
relating to general values and how they affect attitudes and ultimately behavior are also valid
in the context of entrepreneurship.
The fifth and the last article examined if entrepreneurs’ work values, prior experience and
firms’ financial attributes can explain the level of EO. Similarly to the findings of article 4
intrinsic work values were positively related to EO. Values related to status as well as
65
entrepreneur’s prior experience also had a positive effect on entrepreneurial behavior.
Findings related to effects of CEO’s experience are somewhat contradictory as Salvato (2004)
and Altinay and Wang (2011) found a positive relationship between experience and the level
of EO whereas the results of Sciascia et al. (2006) indicated a negative relationship. Extrinsic
values related to comfort, benefits, and job security had a negative effect on EO and the firms’
financial attributes had no effect at all, the latter finding is in contrast to the findings of
Eggers et al. (2013), whereas factors resembling intrinsic work values have been found to
have a positive effect on EO (Okhomina, 2010).
Individuals’ values related to work and prior experiences of entrepreneurship are strong
determinants of EO. The personal hierarchy and weighting of the work values also influence
the individual’s work related behavior as some of the values impacted positively and some of
them negatively on EO.
Since answers to sub questions were found, it is possible to answer the main research
questions of this dissertation “What are the main drivers and performance implications of EO
for SMEs in time of economic crisis?” As the firm’s growth rate is considered to be one of the
tools for measuring firm performance, EO was found to be a significant and positive factor
behind a firm’s long run growth. Hence we can say that EO has positive implications for firm
performance. But on the other hand during a time of economic crisis the different dimensions
of EO can have both positive and negative effects on the performance of SMEs. Therefore it
is difficult to give one definitive answer to this question as the performance implications tend
to be highly context and measure dependent. The performance implications varied across
different stages of the crisis and were also dependent on what performance measure was used.
The main drivers of EO in SMEs were found to be the personal work related values of the
entrepreneur and his/her prior experience as an entrepreneur. The intrinsic work values related
to interest, responsibility, challenge, variety, self-development or intellectual stimulation and
values related to status, power, achievement, advancement status, and recognition had a
positive effect on the level of EO. On the other hand extrinsic values which are related to high
income, material possession, benefits such as generous holidays, job security, and comfort
through good working conditions lower the level of EO.
66
5.2 Contributions
This dissertation contributes to the academic entrepreneurship literature. The economic crisis
offered an extraordinary and unique opportunity to study the implications of EO. Although it
is a much studied concept, there is a consensus in the literature that the relationship between
EO and firm performance depends on the conditions in the surrounding business environment
(Covin and Slevin, 1989) and that it needs further examination (Yusuf, 2002). The crisis
caused instability and uncertainty in the business environment that has not afflicted
economies since the 1930’s (Smallbone et al., 2012). Therefore the timing of this dissertation
makes it one of the first to study the implications of EO on SMEs and it derives some of its
contribution from the first mover’s advantage. Moreover, there is currently actually a call for
studies of this kind as Kraus et al. (2012) pointed out that there are very few studies focusing
on the firm capabilities and conditions needed when firms face acute market uncertainty and
instability.
Besides being in the forefront of studies focusing on EO during a time of extreme
environmental and market turbulence, this dissertation took novel approaches to the topic. It
successfully combined items from earlier studies (Geroski and Gregg, 1993) on the effects of
recession. Those effects are now described in much greater detail than mere changes in the
figures of income statements. Here the focus is on the effects of the crisis at the operational
level, meaning that we had for our analysis data based on managers’ own perceptions of how
the crisis affected the firms’ trading position, work force composition, access to finance etc.
This can be considered one the greatest contributions of the work as it provides new
knowledge about the implications of EO on the factors which firms face every day while
doing business.
This dissertation also contributes the rather limited body of literature focusing on the
determinants of EO (e.g. Salvato, 2004; J alali, 2012; Eggers et al., 2013). As the mainly
positive performance implications of EO have been shown in many studies (e.g. De Clercq et
al., 2010; Grandeet al., 2011) and the importance of entrepreneurship is widely recognized, it
is worthwhile to try to find the factors which promote EO. From the limited group of studies
67
attempting to explain EO, an even more limited number of studies (Okhomina, 2010; Ullah et
al., 2011) focus on psychological traits as antecedents of EO even though there is currently a
call for such an approach in the literature. For instance, Pines et al. (2012, pp. 96) argued that
“in recent years research on entrepreneurial personality has re-emerged as an important
topic of investigation and leading entrepreneurship scholars have noted that a psychological
approach is necessary to understand entrepreneurship”. In addition, Miller and Le Breton-
Miller (2011) argued that there is room for studies focusing on the impact of different types of
owners on EO. Likewise Wiklund (1999) argued that when applied to small firms, EO might
be seen as a result of individual-level determinants. Therefore, the single main and significant
contribution of this dissertation is the successful application of work related values as
antecedents of EO and showing that personal work values significantly determine
entrepreneurially oriented behavior. This relationship has many practical implications to be
discussed later.
This dissertation also makes some minor contribution to the discussion on the context
dependency of the EO-performance relationship. Grande et al. (2011) discussed the effect of
risk dimensions on performance. Although studies such as Frank et al. (2007) have shown a
positive relationship between risk-taking propensity and business success, Grande et al.
(2011) doubted that under market turbulence this relationship might be negative. This
dissertation confirms this assumption by showing that the risk-taking dimension actually
weakened the firm performance during times of economic crisis.
5.3 Managerial, theoretical, and policy implications
The findings of this dissertation have several implications for managers, scholars, and policy-
makers. First, from the practical point of view, our results concerning the relationship
between EO and firm performance suggest that managers should be aware of the effects of
EO on performance and the firm’s operations in different business cycles. Especially when
breaking down the overall effect of EO into smaller elements, the results reveal that managers
should notice that actions related to risk-taking such as venturing into the unknown, heavy
borrowing, or committing large portions of corporate assets in uncertain environments may
have negative effects during economic downturns. Therefore managers should consider before
68
making decisions about investments or ventures entailing high risk. On the other hand, the
results of the dissertation emphasizes the positive role of innovativeness and proactiveness,
suggesting that managers should be innovative and proactive as these factors seem to mitigate
the negative effects inherent in extremely harsh business conditions.
This dissertation also has implications for scholars, as it demonstrates that the relationship
between EO and firm performance is not so straightforward and there are many aspects to be
considered. First, the measures used to gauge the performance may easily alter the findings,
especially if the measures used combine different performance measures into one single
indicator as the different performance dimensions may be contradictory and cancel each other
out, for instance growth and profitability. Therefore it may be worthwhile to use only one
dimension of performance at a time in analyses if only possible. Similar issues are worth
bearing in mind regarding the concept of EO. Depending on whether EO is treated as a
unidimensional phenomenon or if the level of analysis is the subdimensions of EO can also
affect the results. As our results revealed, the dimension can have opposite effects on
performance and the context may also determine which dimension is stronger. For instance,
our results showed that, depending on the stage of the recession, different dimensions affected
performance at different stages.
Our results also have implications for policy-makers as the empirical evidence of the
dissertation suggests that EO and especially innovativeness have positive effects on firm
performance and they also may counterbalance the impact of economic turbulence. Therefore,
policy-makers should be aware of the importance of creating such support programs which
endorse entrepreneurship and initiatives for innovations of SMEs. Moreover, including issues
related to entrepreneurship in all levels of education could enhance the awareness of
entrepreneurship as a career choice and hence increase the level of vital entrepreneurial
activity in the future. Among many other things, with these aforementioned actions it may be
possible to reinforce the respective national economy the better to cope with the challenges of
the future.
The confirmation of the relationship between personal work values and entrepreneurially
oriented behavior may have many practical implications. For instance, when recruiting team
69
members or employees for projects, start-ups or other ventures where entrepreneurial
behavior is needed, applicants’ work values could be used at least as some level indicator
regarding their tendencies towards the desired behavior. In career counseling the work values
could likewise be used as tools for identifying possible future entrepreneurs.
5.4 Limitations and suggestions for future research
Some caution should be exercised in the interpretation of the findings because, like all
research, this dissertation has also some limitations that should be discussed. First, as some of
the models used here are somewhat simplified, it might be important to consider adding
relevant moderating or mediating variables such as those related to environment and cultural
factors into the analyses. Another limitation to be noted is the lack of an opportunity to
control for the effects of the business sector. This is a limitation to be noted as some previous
studies have noted that industry plays an important role in the EO-performance relationship.
Unfortunately, our rather small data set did not allow us to test the industry effects
successfully. Secondly, a longitudinal study design – rather than the present cross-sectional
design – would give us a better platform to explore the causal relationships among the
research variables. Now the lack of longitudinal data reduces confidence in causal effects,
especially in the case of such relationships which have not been so extensively examined in
the literature, such as the relationship between financial conditions and EO. The closeness of
the measurement time point of EO and the annual performance indicators might also cause
some problems regarding the estimated relationships as the construct of EO is associated with
firm success, particularly in the long-run (Eggers et al., 2013). For this limitation the passing
of time is the only cure. Thirdly, there are some possible limitations caused by our rather
small sample consisting of fairly mature and conventional small firms. The type of sample
firms may have an effect on how the work values affect behavior, hence this limitation has an
interesting implication for future research; focusing on new ventures or social enterprises
would offer a different perspective on the topic. Similarly another sample based limitation of
this dissertation is the survivorship bias, as this dissertation only examined entrepreneurs
currently in business. An assessment of those entrepreneurs who were not successful would
enhance the understanding of EO and its relationship with failures of firms. Finally, one
limitation is related to the generalizability of the results. As this dissertation focused only on
70
Finland, it remains to be seen if our findings can be transferred to other countries. This issue
is especially relevant as regards the work values and their relationship to EO as values are
generally argued to be related to (national) culture and hence they may vary across countries
(Defever et al., 2011).
The framework of work values together with EO also opens up some possible avenues for
future research. One possible topic would be to study the context dependence of work values.
For instance, to examine if there are differences in work values across entrepreneurs in
different industries or to compare some special cases like entrepreneurs in social enterprises
and to see whether they value different aspects in their work than entrepreneurs in general.
71
REFERENCES
Altinay, L. and Wang, C., L. (2011) The influence of an entrepreneur’s socio-cultural
characteristics on the entrepreneurial orientation of small firms. Journal of Small Business
and Enterprise Development, 18 (4), 673-694.
Andersén, J . (2010) A critical examination of the EO-performance relationship. International
Journal of Entrepeneurial Behaviour & Research, 16 (4), 309-328.
Audretsch, D., B. (2002) The dynamic role of small firms: Evidence from the U.S. Small
Business Economics, 18, 13-40.
Armstrong, J., S. and Overton, T., S. (1977) Estimating nonresponse bias in mail surveys.
Journal of Marketing Research, 14 (3), 396-402.
Avlonitis, G., J . and Salavou, H., E. (2007) Entrepreneurial orientation of SMEs, product
innovativeness, and performance. Journal of Business Research, 60 (5), 566-575.
Baird, I., S. and Thomas, H. (1985) Toward a contingency model of strategic risk taking.
Academy of Management Review, 10 (2), 230-243.
Baker, W., E. and Sinkula, J., M. (2009) The complementary effects of market orientation and
entrepreneurial orientation on profitability in small businesses. Journal of Small Business
Management, 47 (4), 443-464.
Baumgartner, H. and Steenkamp, J .-B., E., M. (2001) Response styles in marketing research:
a cross-national investigation. Journal of Marketing Research, 38 (2), 143-156.
Bhuian, S., N., Menguc, B. and Bell, S., J. (2005) Just entrepreneurial enough: the moderating
effect of entrepreneurship on the relationship between market orientation and performance.
Journal of Business Research, 58 (1), 9-17.
72
Blanchflower, D., G. and Oswald, A. (1998) What makes an entrepreneur? Journal of Labor
Economics, 16 (1), 26-60.
Blanchflower, D., G., Oswald, A. and Stutzer, A. (2001) Latent entrepreneurship across
nations. European Economic Review, 45, 680-691.
Berglann, H., Moen, E., R., Røed, K. and Skogstøm, J ., F. (2011) Entrepreneurship: Origins
and returns. Labour Economics, 18 (2), 180-193.
Bradley, S., W., Wiklund, J . and Shepherd, D., A. (2011) Swinging a double-edged sword:
The effect of slack on entrepreneurial management and growth. Journal of Business
Venturing, 26, (5), 537-554.
Calantone, R., J ., Cavusgil, S., T. and Zhao, Y. (2002) Learning orientation, firm innovation
capability, and firm performance. Industrial Marketing Management, 31 (6), 515-524.
Carton, R., B. and Hofer, C., W. (2006) Measuring Organizational Performance – Metrics for
Entrepreneurship and Strategic Management Research. Cheltenham, UK, Edward Elgar.
Cassia, L. and Minola, T. (2012) Hyper-growth of SMEs Toward a reconciliation of
entrepreneurial orientation and strategic resources. International Journal of Entrepreneurial
Behaviour & Research, 18 (2), 179-197.
Chaganti, R., Cook, R. and Smeltz, W., J . (2002) Effects of styles: Strategies and systems on
the growth of small businesses, Journal of Developmental Entrepreneurship, 7 (2), 175-192.
Covin, J., G. and Slevin, D., P. (1989) Strategic management of small firms in hostile and
benign environments. Strategic Management Journal, 10 (1), 75-87.
Covin, J ., G. and Slevin, D., P. (1990) New venture strategic posture, structure, and
performance: an industry life cycle analysis. Journal of Business Venturing, 5 (2), 123-35.
73
Covin, J ., G. and Slevin, D., P. (1991) A conceptual model of entrepreneurship as firm
behavior. Entrepreneurship Theory and Practice, 16 (1), 7-25.
Covin, J ., G., Slevin, D., P. and Schultz, R., L. (1994) Implementing strategic missions:
effective strategic, structural, and tactical choices. Journal of Management Studies, 31 (4),
471-503.
Covin, J., G., Green, K., M., and Slevin, D., P. (2006) Strategic process effects on the
entrepreneurial orientation-sales growth rate relationship. Entrepreneurship Theory and
Practice, 30 (1), 57-81.
Covin, J ., G. and Wales, W. (2012) The measurement of entrepreneurial orientation.
Entrepreneurship Theory and Practice, 36 (4), 677-702.
Cowling, M. (2000) Are entrepreneurs different across countries? Applied Economics Letters,
7 (23), 785-789.
Davidsson, P. and Wiklund, J . (1997) Values, beliefs and regional variation in new firm
formation rates. Journal of Economic Psychology, 18 (2-3), 179-199.
Davidsson, P. (2006) Nascent entrepreneurship: empirical studies and developments.
Foundations and Trends in Entrepreneurship Research, 2 (1), 1-76.
De Clercq, D., Dimo, D. and Thongpapanl, N. (2010) The moderating impact of internal
social exchange processes on the entrepreneurial orientation-performance relationship.
Journal of Business Venturing, 25 (1), 87-103.
Defever, C., Pandelaere, M. and Roe, K. (2011) Inducing value-congruent behavior through
advertising and the moderating role of attitudes toward advertising. Journal of Advertising, 40
(2), 25-37.
74
Dess, G., G., Pinkham, B., C. and Yang, H. (2011) Entrepreneurial orientation: assessing the
construct’s validity and addressing some of its implications for research in the areas of family
business and organizational learning. Entrepreneurship Theory and Practice, 35 (5), 1077-
1090.
Dimitratos, P., Lioukas, S. and Carter, S. (2004) The relationship between entrepreneurship
and international performance: the importance of domestic environment. International
Business Review, 13 (1), 19-21.
Eggers, F., Kraus, S., Hughes, M., Laraway, S. and Snycerski S. (2013) Implications of
customer and entrepreneurial orientations for SME growth. Management Decision, 51 (3),
524-546.
Entrialgo, M., Fernández E. and Vázquez, C., J. (2001) The effect of the organizational
context on SME’s entrepreneurship: Some Spanish evidence. Small Business Economics, 16
(3), 223-236.
Fagenson, E., A. (1993) Personal value systems of men and women entrepreneurs versus
managers. Journal of Business Venturing, 8 (5), 409-430.
Frank, H., Lueger, M. and Korunka, C. (2007) The significance of personality in business
start-up intentions, start-up realization and business success. Entrepreneurship & Regional
Development, 19 (3), 227-251.
Freytag, A. and Thurik, R. (2007) Entrepreneurship and its determinants in a cross-country
setting. Journal of Evolutionary Economics, 17 (2), 117-131.
Frishammar, J. and Hörte, S., Å. (2007) The role of market orientation and entrepreneurial
orientation for new product development performance in manual firms. Technology Analysis
& Strategic Management, 19 (6), 765-788.
75
Grande, J ., Madsen, E., L. and Borch, O., J. (2011) The relationship between resources,
entrepreneurial orientation and performance in farm-based ventures. Entrepreneurship &
Regional Development, 23 (3-4), 89-111.
George, B., A. and Marino, L. (2011) The epistemology of entrepreneurial orientation:
conceptual formation, modeling and operationalization. Entrepreneurship Theory and
Practice, 35 (5), 989-1024.
George, G., Wood, D., R., J r. and Khan, R. (2001) Networking strategy of boards:
implications for small and medium-sized enterprises. Entrepreneurship and Regional
Development, 13 (3), 269-285.
George, G. (2005) Slack resources and the performance of privately held firms. Academy of
Management Journal, 48 (4), 661-676.
Geroski, P., A. and Gregg, P. (1993) Coping with the Recession, National Institute Review,
146, 64-75.
Gird, A. and Bagraim, J ., J . (2008) The theory of planned behavior as predictor of
entrepreneurial intent amongst final-year university students. South African Journal of
Psychology, 38 (4), 711-724.
Goethner, M., Obschonka, M., Silbereisen, R., K. and Cantner, U. (2012) Scientists’ transition
to academic entrepreneurship: Economic and psychological determinants. Journal of
Economic Psychology, 33 (3), 628-641.
Grewal, R. and Tansuhaj, P. (2001) Building organizational capabilities for managing
economic crisis: the role of market orientation and strategic flexibility. Journal of Marketing,
65 (2), 67-80.
Grilo, I. and Irigoyen, J .,M. (2006) Entrepreneurship in the EU: to wish and not to be. Small
Business Economics, 26 (4), 305-318.
76
Grilo, I and Thurik, R. (2008) Determinants of entrepreneurial engagement levels in Europe
and the US. Industrial and Corporate Change, 17 (6), 1113-1145.
Hair, JR., J ., F., Anderson, R., E. Tatham, R., L. and Black, W., C. (1998) Multivariate data
analysis. Upper Saddle River, New Jersey, Prenctice Hall.
Hakala, H. (2011) Strategic orientations in management literature: three approaches to
understanding the interaction between market, technology, entrepreneurial and learning
orientation. International Journal of Management Reviews, 13 (2), 199-217.
Harms, R., Reschke, C., H., Kraus, S. and Fink, M. (2010) Antecedents of innovation and
growth, analyzing the impact of entrepreneurial orientation and goal-oriented management.
International Journal of Technology Management, 52 (½), 135-152.
Hult, G., T., M., Hurley, R., F. and Knight, G., A. (2004) Innovativeness: its antecedents and
impact on business performance. Industrial Marketing Management, 33 (5), 429-438.
J antunen, A., Puumalainen, K., Saarenketo, S. and Kyläheiko, K. (2005) Entrepreneurial
orientation, dynamic capabilities and international performance, Journal of International
Entrepreneurship, 3 (3), 223-243.
J alali, S., H. (2012) Environmental determinants, entrepreneurial orientation and export
performance: Empirical evidence from Iran. Serbian Journal of Management, 7 (2), 245-255.
Kaasa, A. (2011) Work values in European countries: Empirical evidence and explanations.
Review of International Comparative Management, 12 (5), 852-862.
Keh, H., T., Nguyen, T., T., M. and Ng, H., P. (2007) The effects of entrepreneurial
orientation and marketing information on the performance of SMEs. Journal of Business
Venturing, 22 (4), 592-611.
77
Kemelgor, B., H. (2002) A comparative analysis of corporate entrepreneurial orientation
between selected firms in the Netherlands and the USA. Entrepreneurship and Regional
Development, 14 (1), 67-87.
Kets de Vries, M., F., R. (1977) The entrepreneurial personality: A person at the crossroads.
Journal of Management Studies, 14 (1), 34-57.
Knight, G., A. (1997) Cross-cultural reliability and validity of a scale to measure firm
entrepreneurial orientation. Journal of Business Venturing, 12 (3), 213-225.
Kohli, A., K. and J aworski, B., J . (1990) Market orientation: the construct, research
propositions, and managerial implications, Journal of Marketing, 54, 1-18.
Kraus, S., Coen Rigtering, J ., P., Hughes, M. and Hosman, V. (2012) Entrepreneurial
orientation and the business performance of SMEs: a quantitative study from the Netherlands.
Review of Managerial Science, 6 (2), 161-182.
Kraus, S. (2013) The role of entrepreneurial orientation in service firms: empirical evidence
from Austria. Service Industries Journal, 33 (5), 427-444.
Lafuente, A. and Salas, V. (1989) Types of entrepreneurs and firms: the case of new Spanish
firms. Strategic Management Journal, 10 (1), 17-30.
Lappalainen, J . and Niskanen, M. (2009) Does board composition and ownership structure
affect firm growth? Evidence from Finnish SMEs. Research in Economics and Business:
Central and Eastern Europe, 1 (1) 66-83.
Lappalainen, J . and Niskanen, M. (2012) Financial performance of SMEs: impact of
ownership structure and board composition. Management Research Review, 35 (11), 1088-
1108.
78
Lasch, F., Gundolf, K. and Kraus, S. (2007) The impact of unemployment on
entrepreneurship: Empirical evidence from France. International Journal of Business
Research, 7 (2), 1-8.
Lechner, C., Dowling, M. and Welpe, I. (2006) Firm networks and firm development: the role
of the relational mix. Journal of Business Venturing, 21 (4), 514-540.
Lechner, C. and Gudmundsson, S., V. (2012) Entrepreneurial orientation, firm strategy and
small firm performance. International Small Business Journal, 0(0), 1-25.
Li, Y.-H., Huang, J .-W. and Tsai, M.-T. (2009) Entrepreneurial orientation and firm
performance: The role of knowledge creation process. Industrial Marketing Management, 38
(4), 440-449.
Lin, Z., Picot, G. and Compton, J. (2000) The entry and exit dynamics of self-employment in
Canada. Small Business Economics, 15 (2), 105-125.
Liñán, F., Rodríguez-Cohard, J ., C. and Rueda-Cantuche, J ., M. (2011) Factors affecting
entrepreneurial intention levels: a role for education. International Entrepreneurship
Management Journal, 7 (2), 195-218.
Lumpkin, G., T. and Dess G., G. (1996) Clarifying the entrepreneurial orientation construct
and linking it performance. Academy of Management Review, 21 (1), 135-172.
Lumpkin, G., D. and Dess, G., G. (2001) Linking two dimensions of entrepreneurial
orientation to firm performance: the moderating role of environment and industry life cycle.
Journal of Business Venturing, 16 (5), 429-451.
Lugovskaya, L. (2010) Predicting default of Russian SMEs on the basis of financial and non-
financial variables. Journal of Financial Services Marketing, 14 (4), 301-313.
79
Lyons, S., T., Duxbury, L., E. and Higgins, C., A. (2006) A comparison of the values and
commitment of private sector, public sector, and parapublic sector employees. Public
Administration Review, 66 (4), 605-618.
Lyons, S., T., Higgins, C., A. and Duxbury, L. (2010) Work values: development of a new
three-dimensional structure based on confirmatory smallest space analysis. Journal of
Organizational Behavior, 31 (7), 969-1002.
Madsen, E., L. (2007) The significance of sustained entrepreneurial orientation on
performance of firms – a longitudinal analysis. Entrepreneurship & Regional Development,
19 (2), 185-204.
Marchina, M.-T. and Mura, R. (2010) Financial flexibility, investment ability, and firm value:
Evidence from firms with spare debt capacity. Financial Management, 39 (4), 1339-1365.
Marino, L., Strandholm, K., Steensma, K., H. and Weaver, M., K. (2002) The moderating
effect of national culture on the relationship between entrepreneurial orientation and strategic
alliance portfolio extensiveness. Entrepreneurship Theory and Practice, 26 (1), 145-160.
Masuda, T. (2006) The determinants of latent entrepreneurship in J apan. Small Business
Economics, 26 (3), 227-240.
Meglino, B., M. and Ravlin, E., C. (1998) Individual values in organizations: concepts,
controversies, and research. Journal of Management, 24 (3), 351-389.
Messersmith, J ., G. and Wales, W., J . (2013) Entrepreneurial orientation and performance in
young firms: the role of human resource management. International Small Business Journal,
31 (2), 115-136.
Merz, G., R. and Sauber, M., H. (1995) Profiles of managerial activities in small firms.
Strategic Management Journal, 16 (5), 551-564.
80
Meynhardt, T. and Diefenbach, F., E. (2012) What drives entrepreneurial orientation in the
public sector? Evidence from Germany’s Federal Labor Agency. Journal of Public
Administration Research and Theory, 22 (4), 761-792.
Minniti, M. and Naudé, W. (2010) What do we know about the patterns and determinants of
female entrepreneurship across countries? European Journal of Development Research, 22
(3), 277-293.
Miller, D. and Friesen, P., H. (1982) Innovation in conservative and entrepreneurial firms:
two models of strategic momentum. Strategic Management Journal, 3 (1), 1-26.
Miller, D. (2011) Miller (1983) revisited: A reflection on EO research and some suggestions
for the future. Entrepreneurship Theory and Practice, 35 (6), 873-894.
Miller, D., Le Breton-Miller, I. (2011) Governance, social identity, and entrepreneurial
orientation in closely held public companies. Entrepreneurship Theory and Practice 35 (15),
1051-1076.
Mintzberg, H. (1973) Strategy-making in three modes. California Management Review, 16
(2), 44-53.
Moreno, A., M. and Casillas, J., C. (2008). Entrepreneurial orientation and growth of SMEs: a
causal model. Entrepreneurship Theory and Practice, 32 (2), 507-528.
Morris, M., H., Davis, D., L. and Allen, J ., W. (1994) Fostering corporate entrepreneurship:
Cross-cultural comparisons of the importance of individualism versus collectivism. Journal of
International Business Studies, 25 (1), 65-89.
Morris, M., H., Coombes, S., Schindehutte, M. and Allen, J . (2007) Antecedents and
outcomes of entrepreneurial and market orientations in a non-profit context: Theoretical and
empirical insights. Journal of Leadership and Organizational Studies, 13 (4), 12-39.
81
Okhomina, D. (2010) Entrepreneurial orientation and psychological trait: the moderating
influence of supportive environment. Journal of Behavioral Studies in Business, 2 (May), 1-
16.
O’Neil, H., W. (1967) Response Style Influence in Public Opinion Surveys. Public Opinion
Quarterly, 31 (1), 95-102.
Parker, S., C. and Robson, M., T. (2004) Explaining international variations in self-
employment: evidence from a panel of OECD countries. Southern Economic Journal, 71 (2),
287-301.
Penrose, E. (1959) The theory of the growth of the firm, Wiley, New York.
Peters, M., Pfurtscheller, A., Wong, K., K., F. and Kraus, S. (2010) The influence of
entrepreneurial branding on entrepreneurial/growth orientations: an empirical study in the
Austrian tourism industry. International Journal of Business Research, 10 (2), 27-37.
Pines, A., M., Dvir, D. and Sadeh, A. (2012) Dispositional antecedents, job correlates and
performance outcomes of entrepreneurs’ risk taking. International Journal of
Entrepreneurship, 16, 95-112.
Podsakoff, P., M., MacKenzie, S., B., Lee, J ., Y. and Podsakoff, N., P. (2003) Common
method biases in behavioral research: A critical review of the literature and recommended
remedies. Journal of Applied Psychology, 88 (5), 879-903.
Qureshi, S. and Kratzer, J . (2011) An investigation of antecedents and outcomes of marketing
capabilities in entrepreneurial firms: An empirical study of small technology-based firms in
Germany. Journal of Small Business and Entrepreneurship, 24 (1), 49-66.
Rauch, A., Wiklund, J., Lumpkin, G., T. and Frese, M. (2009) Entrepreneurial orientation and
business performance: An assessment of past research and suggestions for the future.
Entrepreneurship Theory and Practice, 33 (3), 761-78.
82
Reynolds, P., Storey, D. J . and Westhead, P. (1994) Cross-national comparison of the
variation in new firm formation rates. Regional Studies, 27 (4), 443-456.
Ringle, C. and Wende, S. and Will, A. (2005) SmartPLS 2.0, Hamburg: University of
Hamburg.
Rokeach, M. (1973) The nature of human values. New York: The Free Press.
Ros, M., Schwartz, S. and Surkiss, S. (1999) Basic individual values, work values, and he
meaning of work. Applied Psychology: An International Review, 48 (1) 49-71.
Runyan, R., Droge, C. and Swinney, J . (2008) Entrepreneurial orientation versus small
business orientation: What are their relationships to firm performance? Journal of Small
Business Management, 46 (4), 567-588.
Salvato, C. (2004). Predictors of entrepreneurship in family firms. The Journal of Private
Equity, 7 (3), 68-76.
Sciascia, S., Naldi, L. and Hunter E. (2006) Market orientation as determinants of
entrepreneurship: An empirical investigation on SMEs. Entrepreneurship Management, 2 (1),
21-38.
Smallbone, D., Deakins, D., Battisti, M. and Kitching, J. (2012) Small business responses to a
major economic downturn: Empirical perspectives from New Zealand and the United
Kingdom. International Small Business Journal, 30 (7), 754-777.
Singh, S. (1989) Personality characteristics, work values and life styles of fast- and slow-
progressing small-scale entrepreneurs. Journal of Social Psychology, 129 (6), 801-805.
83
Smith, N. and Miner, J . (1983) Type of entrepreneurs, type of firm, and managerial
motivation: implications for organizational life cycle theory. Strategic Management Journal,
4 (4), 325-340.
Stam, W. and Elfring, T. (2008) Entrepreneurial orientation and new venture performance: the
moderating role of intra- and extraindustry social capital. Academy of Management Journal,
51 (1), 97-111.
Statistics Finland (2011) National Balance of Supply and Demand Quarterly. [e-database].
From:http://pxweb2.stat.fi/Dialog/varval.asp?ma=120_ntp_tau_102_en&ti=National+balance+of+s
upply+and+demand++quarterly+%28GDP+expenditure+approach%29+1990Q1-
&path=../Database/StatFin/kan/ntp/&lang=1&multilang=en [retrieved August 12, 2011]
Tan, J . and Tan, D., (2005) Environment-strategy coevolution and coalignment: a stacked-
model of Chinese SOEs under transition. Strategic Management Journal, 31 (2), 207-222.
Tang, J ., Tang, Z., Zhang, Y. and Li, Q. (2008) The impact of entrepreneurial orientation and
ownership type on firm performance in the emerging region of China. Journal of
Developmental Entrepreneurship, 12 (4), 383-397.
Thomas, A., S. and Mueller, S., L. (2000) A case for comparative entrepreneurship: Assessing
the relevance of culture. Journal of International Business Studies, 31 (2), 287-301.
Ullah,H., Dean, B., S. and Kaleem, M. (2011) A study of owner’s inherited factors affecting
entrepreneurial orientation in Khyber Pakhtunwkha-Pakistan. Institute of Interdisciplinary
Business Research, 3 (1), 712-725.
Uy, A., O., O. (2011) What motivates entrepreneurs? A study of the value systems of Filipino
entrepreneurs. International Journal of Entrepreneurship, 15, 73-95.
84
Van Stel, A., Carree, M. and Thurik, R. (2005) The effect of entrepreneurial activity on
national economic growth. Small Business Economic, 24, 311-321.
Vij, S. and Bedi, H., S. (2012) Relationship between entrepreneurial orientation and business
performance: a review of literature. The IUP Journal of Business Strategy, IX (3), 17-31.
Vinken, H. (2007) New life course dynamics: career orientations, work values and future
perceptions of Dutch youth. Young, 15 (1), 9-30.
Wales, W., J., Vishal, G., G. and Mousa, F-T. (2011) Empirical research on entrepreneurial
orientation: An assessment and suggestions for future research. International Small Business
Journal, published online 13 November 2011, DOI: 10.1177/0266242611418261, 1-27.
Wall, T., D., Michie, J., Patterson, M., Wood, S., J., Sheehan, M., Clegg, C., W. and West, W.
(2004) On the validity of subjective measures of company performance. Personnel
Psychology, 57 (1), 95-118.
Wang, C., L. (2008) Entrepreneurial orientation, learning orientation, and firm performance.
Entrepreneurship Theory and Practice, 34 (3), 635-657.
Warr, P. (2008) Work values: Some demographic and cultural correlates. Journal of
Occupational and Organizational Psychology, 81 (4), 751-775.
Wiklund, J . (1999) The sustainability of the entrepreneurial orientation–performance
relationship. Entrepreneurship Theory and Practice, 24 (1), 37-48.
Wiklund, J . and Shepherd, D. (2003) Knowledge-based resources, entrepreneurial orientation,
and the performance of small and medium-sized businesses. Strategic Management Journal,
24 (12), 1307–1314.
Wiklund, J . and Shepherd, D. (2005) Entrepreneurial orientation and small business
performance: a configurational approach. Journal of Business Venturing, 20 (1), 71-91.
85
Wiklund, J. and Shepherd, D., A. (2011) Where to from here? EO-as-experimentation, failure,
and distribution of outcomes. Entrepreneurship Theory and Practice, 35 (6), 925-946.
Wood, C., C., Holt, D., T., Reed, T., S. and Hudgens, B., J . (2008) Perception of corporate
entrepreneurship in Air Force organizations: Antecedents and outcomes. Journal of Small
Business and Entrepreneurship, 21 (1), 117-132.
Yaghubi, N.-M. and Naroei, M. (2011) Affecting factors on entrepreneurial orientation in the
industry. Chinese Business Review, 10 (10), 889-894.
Yusuf, A. (2002) Environmental uncertainty, the entrepreneurial orientation of business
ventures and performance. International Journal of Commerce & Management, 13 (3&4), 83-
103.
Zahra, N. (2013) Implications of demographic antecedents in determining the motivational
drives among women entrepreneurs: a Case study of women entrepreneurs venturing in
Lahore, Pakistan. Asian Journal of Business Management, 5 (1), 163-173.
Zahra, S., A. (2008) Being entrepreneurial and market driven: implications for company
performance. Journal of Strategy and Management, 1 (2), 125-142.
Zahra, S., A. (1986) A canonical analysis of corporate entrepreneurship antecedents and
impact on performance. Proceedings of the National Academy of Management, 46, 71-75.
Zahra, S., A. and Covin, J ., G. (1995) Contextual influences on the corporate
entrepreneurship-performance relationship: a longitudinal analysis. Journal of Business
Venturing, 10, 43-58.
Zahra, S., A. and Neubaum, D., O. (1998) Environmental adversity and the entrepreneurial
avtivities of new ventures. Journal of Developmental Entrepreneurship. 3 (2), 123-140.
86
Zahra, S., A. and Garvis, D. (2000) International corporate entrepreneurship and firm
performance: the moderating effect of international environmental hostility. Journal of
Business Venturing, 15 (5-6), 469-92.
Zainol, F., A. and Ayadurai, S. (2011) Entrepreneurial orientation and firm performance: The
role of personality traits in Malay family firms in Malaysia. International Journal of Business
and Social Science, 2 (1), 59-71.
PART II: THE ARTICLES
ARTICLE I
Soininen, J ., Martikainen, M., Puumalainen, K. and Kyläheiko, K. (2012).
ENTREPRENEURIAL ORIENTATION: GROWTH AND PROFITABILITY OF
FINNISH SMALL AND MEDIUM-SIZED ENTERPRISES.
International Journal of Production Economics, 140 (2), 614-621.
Copyright © Elsevier B.V. Reproduced with permission.
Entrepreneurial orientation: Growth and pro?tability of Finnish
small- and medium-sized enterprises
$
Juha Soininen
n
, Minna Martikainen, Kaisu Puumalainen, Kalevi Kyl ¨ aheiko
School of Business, Lappeenranta University of Technology, P.O. Box 20, 53851 Lappeenranta, Finland
a r t i c l e i n f o
Article history:
Received 15 April 2010
Accepted 26 May 2011
Available online 6 June 2011
Keywords:
SMEs
Risk
Entrepreneurial orientation
Performance
a b s t r a c t
Our paper investigates, whether there exist intrinsic strategic characteristics, which enables some ?rms
to tolerate economic dif?culties stronger than their companions. Tolerance as such also indicates if
SMEs as investments are providing return accordingly to their risk level. In our view, the differences in
entrepreneurial orientation could be a decisive explainer behind this phenomenon. This paper
contributes to previous literature by investigating, how the ?rm’s internal strategic behavior is able
to improve the ?rm performance, and also by showing that SMEs are providing the compensation of
risk to investors. Our results indicate that entrepreneurial orientation affects directly ?rm’s growth rate.
& 2011 Elsevier B.V. All rights reserved.
1. Introduction
Small- and medium-sized enterprises (SMEs) have become an
increasingly important component of economic development repre-
senting a substantial proportion of the national economies all around
the world (Paul et al., 2007; Karpak and Topcu, 2010). Recent
literature denotes that although large ?rms have historically been
main job creators, the trend has reversed in the last twenty years, as
the number of small- and medium-sized enterprises (SMEs) and jobs
created by them have remarkably increased. Previous research high-
lights that especially during economic downturns, the role of SMEs
and entrepreneurship is stronger (see for instance Carree and Thurik,
1998). Current global economic crisis seems to be especially hard for
large companies. Therefore, SMEs are facing strong expectations for
their role to be key players when economies will be recovering from
the present global recession. Previous research has also widely
investigated the ?rms’ characteristics creating pro?tability. However,
the results obtained are inconclusive or even contradictory. Conse-
quently, many researchers have concluded that more research is
needed in that area (e.g. Lumpkin and Dess, 1996), since different
business and institutional structures and industrial characteristics are
creating a large variability to ?ndings in this research area. Given the
important role of SMEs, it is essential to further investigate if there
exist some intrinsic strategic characteristics, which affect ?rm’s
growth and pro?tability.
Ever since the 1980s, entrepreneurial orientation (EO) has
emerged as a major construct within the strategic management
and entrepreneurship literature. Covin et al. (2006) de?ne EO as a
strategic construct whose conceptual domain includes certain
?rm-level outcomes and management-related preferences, beliefs,
and behaviors as expressed among a ?rm’s top-level managers.
Runyan et al. (2008) argue that EO is evidenced through visible
entrepreneurial tendencies toward innovativeness, proactiveness
and risk taking. Miller (1983) and later Covin and Slevin (1989)
operationalized these characteristics and found them central to
EO. According to Rauch et al. (2009) these three dimensions of the
EO construct can be de?ned as follows:
Innovativeness represents creativity and experimentation
through the introduction of new products/services as well as
technological leadership via R&D in new processes. It comes
close to the Schumpeterian idea of creating new combinations
(Jantunen et al., 2005).
Risk taking describes the nature of easily venturing into the
unknown, borrowing heavily, and/or committing remarkable
resources to ventures in uncertain environments.
Proactiveness is an opportunity-seeking, forward-looking per-
spective characterized by the introduction of new products and
services ahead of competition and acting in anticipation of the
future demand. This kind of opportunity-seeking and seizing
behavior has also been characterized as strategic agility
(Bullinger, 1999), and comes close to Teece’s (2007) idea of
dynamic capabilities that make it possible to sense weak
signals and seize them by entrepreneurial investment behavior.
In recent years there has been an increased focus on the
relationship between ?rm’s strategic orientation and ?rm perfor-
mance (Madsen, 2007). Prior studies have generally found a
Contents lists available at ScienceDirect
journal homepage: www.elsevier.com/locate/ijpe
Int. J. Production Economics
0925-5273/$ - see front matter & 2011 Elsevier B.V. All rights reserved.
doi:10.1016/j.ijpe.2011.05.029
$
Early version of this paper presented in 16th International Working Seminar
on Production Economics, Innsbruck, Austria, March 1–5, 2010.
n
Corresponding author. Tel.: þ358 5 621 7221; fax: þ358 5 621 7299.
E-mail addresses: juha.soininen@lut.? (J. Soininen),
minna.martikainen@lut.? (M. Martikainen),
kaisu.puumalainen@lut.? (K. Puumalainen), kalevi.kylaheiko@lut.? (K. Kyl ¨ aheiko).
Int. J. Production Economics 140 (2012) 614–621
positive relationship between EO and ?rm performance (Jantunen
et al., 2005; Wiklund and Shepherd, 2005; Madsen, 2007). However,
there are also studies where such a relationship has not been found
(Smart and Conant, 1994). One reason might be that the measure
that has been used to assess the ?rm performance has typically
been a combination of both pro?tability and growth measures
(Covin and Slevin, 1989; Wiklund, 1999; Avlonitis and Salavou,
2007). However, there are also few studies that have purely
explored the speci?c relationship between EO and the ?rm growth
(Covin et al., 2006; Moreno and Casillas, 2008). Findings of these
studies have con?rmed that there really exist a positive relationship
between EO and the ?rm’s rate of growth.
The purpose of this study is to explore whether there exist
positive relationships between EO and the ?rm pro?tability as
well as between EO and the ?rm’s rate of growth in the context of
Finnish SMEs. Although the relationship between the ?rm’s
entrepreneurial posture and its ?nancial performance is already
abundantly studied by the prior literature (e.g. Zahra and Covin,
1995; Keh et al., 2007) this study contributes to entrepreneurship
research in two respects. First, to be able to more thoroughly
investigate the importance of internal factors generating the
?rm’s growth and pro?tability, these two relationships (i.e.
EO&pro?tability and EO&growth) are analyzed separately. This
kind of an approach is rational and well grounded, since, e.g.
Moreno and Casillas (2008) argue that the traditionally used ?rm
performance concept that combines the indicators associated
with pro?tability and growth is two-dimensional in a way where
both of the dimensions can be sometimes contradictory. They also
point out that it would be worthwhile to explore whether there is
a positive relationship between the ?rms’s EO and its growth.
Moreover, these dimensions of EO&pro?tability and EO&growth
are analyzed separately to be able to conclude if risk taken,
measured as EO, is resulting SMEs to provide higher returns for
investors. As investors are seen for instance, ?rm owners. This is
highly relevant especially in the framework of non-listed SMEs,
since ?rm risk is especially dif?cult to measure for non-listed
companies, since market based risk measures, such as the beta,
cannot be used due to the lack of the daily stock price informa-
tion. Second, this paper contributes to previous literature by
investigating how different EO dimensions are related to the ?rm
risk. Moreover, we try to ?nd out whether the ?rm risk is
simultaneously positively linked with ?rm performance. Third,
as Rauch et al. (2009) point out prior EO literature has mainly
focused on the U.S. companies. In our view, Finland provides an
interesting new setting for this type of analysis, since it consti-
tutes a good example of a competitive and innovative business
environment. The SME’s can be said to be the backbone of the
Finnish economy. The importance of the SMEs in Finland can be
characterized by the facts that they are currently estimated to
represent 99.9% of all the Finnish business enterprises and to
employ 62% of the work force in the private sector. The SME’s
were also in the extremely salient role in the 1990s when Finland
was recovering from the one of the deepest recessions in western
world during the post-war era.
The paper is structured as follows: Section 2 de?nes our main
concepts, reviews the relevant literature and presents the
research hypotheses to be empirically analyzed. Then follows a
description of the methodology used in empirical research in
Section 3. In Section 4 the main ?ndings are presented. Finally,
Section 5 summarizes the results along with their implications.
2. Theoretical framework and hypotheses
A substantial amount of research has examined the concept of
entrepreneurial orientation (EO) during the last three decades so
that one can state that has become one of the central concepts in
the domain of entrepreneurship studies (Covin et al., 2006). For
instance, Rauch et al. (2009) point out in their meta-analysis, that
more than 100 studies dealing with EO have been conducted,
which has led to a wide acceptance of the conceptual meaning
and relevance of the concept.
2.1. The dimensions of entrepreneurial orientation concept
Miller (1983) conceptualized the three focal dimensions of EO
as innovativeness, risk taking and proactiveness and these three
dimensions have been since used consistently in the literature
(Dimitratos et al., 2004; Kemelgor, 2002). Lumpkin and Dess
(1996) describe the innovativeness as follows: Innovativeness
re?ects a ?rm’s Schumpeterian tendency to engage in and support
new ideas, novelty, experimentation, and creative processes that
may result in new products, services, or technological processes.
Innovativeness represents a basic willingness to depart from
existing technologies or practices and venture beyond the current
state of art. They see innovativeness as an important component
of an EO, because it re?ects an important means through which
?rms pursue new opportunities.
According to Baird and Thomas (1985) there are three different
types of strategic risk taking such as venturing in to the unknown,
heavy borrowing, and/or committing large portions of corporate
assets in uncertain environments. Similarly, Lumpkin and Dess
(1996) state that ?rms with entrepreneurial orientation are often
typi?ed by risk-taking behavior, such as incurring heavy debt or
making signi?cant resource commitments, in the interests of
obtaining high returns by seizing opportunities in the marketplace.
Rauch et al. (2009) describe proactiveness as an opportunity-
seeking, forward-looking perspective characterized by the intro-
duction of new services and products ahead of the competition
and acting in anticipation of future demand. In this context it
becomes close the modern interpretation launched by Teece
(2007) when de?ning dynamic capabilities as entrepreneurial
acts to sense weak signals and seize the opportunity by invest-
ment. Besides the three most commonly used dimensions above
Lumpkin and Dess (1996) argue that two additional dimensions
competitive aggressiveness and autonomy would also be salient
components of EO. Lumpkin and Dess (2001) de?ne these two
additional dimensions as follows: competitive aggressiveness is
said to re?ect the intensity of a ?rm’s effort to outperform
industry rivals, characterized by a strong offensive posture and
a forceful response to competitor’s actions. Autonomy is inde-
pendent action by an individual or team aimed at bringing forth a
business model or vision and carrying it through to completion.
However, the usage of the EO model with all the aforemen-
tioned ?ve dimensions has been rare in the EO literature (e.g.
George et al., 2001) when compared with the use of the model
with three dimensions. Moreover, Rauch et al. (2009) state that
the focal dimensions of EO are usually highly intercorrelated with
each other, which leads to combining these dimensions into one
single factor. Therefore, scholars such as Covin and Slevin (1989)
argue that the EO construct is best viewed as a unidimensional
concept, whereas Lumpkin and Dess (2001), for example, suggest
that the different dimensions of EO may relate differently to ?rm
performance and hence promote the use of the multidimensional
EO as an explainer. However, in this study we will be using the
unidimensional approach because it is more commonly used in
the research.
2.2. The EO–performance relationship
The modern business environment is an environment where
the pace of change is fast, product and business model lifecycles
J. Soininen et al. / Int. J. Production Economics 140 (2012) 614–621 615
are shortened, the future pro?t streams from existing operations
are uncertain and businesses need to constantly seek out new
opportunities. Therefore, ?rms may bene?t from adopting an EO,
i.e. being innovative, risk taking and proactive (Rauch et al., 2009).
Wiklund (1999) relates the positive in?uence of EO on perfor-
mance to the ?rst-mover advantages and the tendency to take
advantage of emerging opportunities implied by EO, i.e. to sense
weak signals and seize the opportunity. Zahra and Covin (1995)
argue that ?rms with EO can ‘‘skim’’ the markets ahead of their
competitors by targeting premium market segments and charging
high prices. Wiklund (1999) points out that these ?rms monitor
market changes and respond rapidly, thus capitalizing on emer-
ging opportunities. Innovation keeps them ahead of their compe-
titors, gaining a competitive advantage that leads to improved
?nancial results. Proactiveness gives the ?rms the capacity to
present new products or services to the market before their
competitors, which gives them also a competitive advantage.
Furthermore, Wiklund (1999) also states that there is a reason
to believe that the relation between EO and performance may be
especially strong in the context of small ?rms. Most likely,
smallness per se enhances ?exibility and innovation but limits
competitiveness in other strategic dimensions.
Several empirical studies have found that ?rms with high EO
perform better than ?rms with low EO. For example, Keh et al.
(2007) found out that EO plays an important role in enhancing
?rm performance. Similarly, Wiklund and Shepherd (2003) found
a strong correlation (r¼.34) between EO and performance.
Wiklund (1999) showed that investments in EO may be worth-
while for small ?rms since there is a positive relationship
between EO and performance and that the relationship actually
increases over time. On the other hand, some studies have shown
that the relationship between EO and performance is not that
straightforward. Bhuian et al. (2005) among others found that the
entrepreneurship is one of the key elements in organizational
success, but the relationship is shaped like inverted U, meaning
that a high degree of entrepreneurship is not always desirable in
certain market and structural conditions. In any case, we launch
our ?rst hypothesis according to the ‘‘received view’’ as follows:
H1. Entrepreneurial orientation is positively related to pro?t-
ability of SMEs.
The prior literature has not reached consensus on measures to
assess the small ?rm performance (Karpak and Topcu, 2010).
Several studies have used perceived performance indicator to
assess ?rm performance (Lumpkin and Dess, 2001; Wiklund and
Shepherd, 2003; Madsen, 2007; Runyan et al., 2008). The items that
were used to form the performance indicator typically based on a
manager’s subjective views about the ?rm’s pro?tability, growth
and market share in relative to its most important competitors.
On the other hand, some studies have utilized ?nancial statements
of ?rms to capture the both growth and pro?tability dimension of
company ?nancial performance (Bhuian et al., 2005; Covin et al.,
2006). One common factor for the performance indicators based
either on perceived data or secondary data is the fact that in both
cases the indicator contains growth measures and pro?tability
measures. However, according to Moreno and Casillas (2008) this
kind of an approach may not be the most suitable because the
growth dimension and pro?tability dimension may sometimes be
contradictory and, therefore, they should not be combined into one
single indicator.
Growth is the dominant goal of the entrepreneurial organiza-
tion stated Mintzberg (1973) almost four decades ago. Later on,
Lumpkin and Dess (1996) noted that an EO is, essentially, a
growth orientation. Similarly, Stewart and Roth (2001) referred to
entrepreneurial small business owners as growth oriented.
However, despite these widely acknowledged facts, the relation-
ship between EO and growth dimension of ?rm performance has
been studied remarkably seldom. Covin et al. (2006) argued that
EO effectiveness is appropriately measured using criteria that
re?ect a ?rm’s success at translating entrepreneurial opportu-
nities into growth trajectories. In their study they used sales
growth rate as a growth proxy when exploring the relation
between EO and growth. Findings of their study showed that
there is a positive relationship between EO and sales growth rate.
Furthermore, they also suggested that the effects of EO on a ?rm’s
growth rate depend on several strategic process-related variables.
On the other hand, Moreno and Casillas (2008) did not ?nd a
direct in?uence between EO and ?rm growth to be signi?cant.
However, their results suggested that there is an indirect relation-
ship via the mediating and moderating role of other variables
such as strategy, environment, or resources of the ?rm. According
to Moreno and Casillas (2008) their results underline the com-
plexity of the relationship between EO and ?rm growth. In spite
of the skeptic views we formulate our second hypothesis as
follows:
H2. Entrepreneurial orientation is positively related to growth
of SMEs.
2.3. Firm return and risk
Risk is a variable that has been used to calibrate required
return dating back already to merchants in ancient China.
Merchants used to adjust the price of their wares by the riskiness
of their trading routes. The greater the risk to get robbed and
loose income, the higher price they had to charge to maintain an
acceptable return on their invested assets (Lusk et al., 2008). This
same concept regarding the positive relationship between the risk
and the return is nowadays the cornerstone in ?nance theory.
Nickel and Rodriguez (2002) argue that this relationship arises
primarily from a risk-averse reasoning: people will not support
higher risk for the same level of return; higher risk will be
accepted only if it is compensated with a higher return.
Strong theoretical framework to show the relation between
risk-return is presented in ?nance literature captured by the
Capital Asset Pricing Model (CAPM; Sharpe (1964) and by
Lintner (1965)). CAPM relates ?rm returns directly to the ?rm
risk. The CAPM is depicted as below:
EðR
it
Þ ¼R
f
þb
i
ðEðR
m
ÞÀR
f
Þ, ð1Þ
where E(R
it
) is the expected return for stock i at time t. The term
R
f
is the risk-free rate, the term b
i
is the sensitivity to changes in
market portfolio of stock i, therefore the Beta is the measure of
systematic risk. The market risk premium is represented by the
term (E(R
m
)ÀR
f
), where E(R
m
) is the average return on the market.
CAPM states that the riskier is the ?rm the more return
investors are entitled to expect from the investment in the long
run. However, at the same time with the higher expectations in
returns the risk means higher variability in expected returns. The
relationship between risk and return has been widely tested with
?nancial data from the stock market, and using the beta of CAPM
as the risk measure (Nickel and Rodriguez, 2002). The achieved
results of the large set of literature are a little bit contradictory,
but the main conclusion is that theoretically CAPM stays solid.
Empirical results of the model vary depending on the research
setting, for instance the early studies in the area had obtained a
signi?cant positive relationship, as the CAPM theory postulates
(see Black et al., 1972; Fama and Macbeth, 1973). The risk-
expected return trade-off is also tested by using other techniques
than the CAPM, and a large number of studies (for instance,
Leo´ n et al., 2007) have found a positive signi?cant relationship
J. Soininen et al. / Int. J. Production Economics 140 (2012) 614–621 616
between expected market return and conditional variance (i.e.
risk) on equity indices.
Similarly, to the stock market framework above, the same
concept of the trade-off between risk and return has been also
brought into accounting and organizational research. In this ?eld
of research the ?ndings are somewhat contradictory. Some
studies have reported negative relationship between risk and
return (Bromilley, 1991), whereas for instance Fiegenbaum and
Thomas (1986) found a signi?cant relationship between market
risk measure and accounting return. In our research we are
investigating whether ?rm risk measured from ?nancial state-
ments is related to higher performance of the ?rm. Especially we
are interested to ?nd out if EO dimensions are found to be related
simultaneously to higher returns and higher risk and therefore we
formulate our third hypothesis as follows:
H3. The risk-taking component of EO is related to the higher
variability and level in pro?tability among SMEs over time.
3. Research method used
3.1. Sample and data collection
The empirical data used to test the hypotheses were drawn
from a mail survey conducted in spring 2009 by means of a
structured questionnaire. The initial population consisted of
Finnish small private limited companies (they typically have
few shareholders and are usually owner-managed family busi-
nesses) with a sales turnover between 1 and 10 million euros.
Hypotheses were tested in a multiple industry setting, because of
a greater generalizability. A total of 13,495 ?rms were identi?ed
from the Voittoþ- database, and a systematic random sample of
1026 ?rms was drawn. The pre-tested survey questionnaire with
an introductory cover letter was mailed to the respondents,
assured of con?dentiality and promised a summary of the results.
A follow-up was sent to those who had not responded within two
weeks. Final responses were received from 194 companies, yield-
ing a satisfactory effective response rate of 18.9% (194/1026).
It was possible to get ?nancial information about the companies
via Voittoþ database that is a commercial database containing
?nancial statements of over 82,000 Finnish ?rms. The ?nancial
measures used in this study are based on the ?nancial statements
of 2008. Nonresponse bias was checked on a number of key
variables, such as growth rate, pro?tability, sales and age and
EO, by comparing the early (?rst-round) respondents with the late
respondents (following the suggestions of Armstrong and Overton,
1977) and we did not ?nd any signi?cant differences between the
two groups.
3.2. Measures
We are utilizing 9 items to capture the three dimensions of EO
conceptualized by Miller (1983). The items are based on the work
of Covin and Slevin (1990). However, they are slightly adapted to
?t better with the context of Finnish small enterprises. A principal
component analysis of the EO items (see Table 1) resulted in two
components explaining together 61% of the variance in the items.
The items measuring innovativeness and proactiveness merged
into the ?rst component, while risk-taking items loaded highly on
the second component. The internal consistency of the scales was
good, as the Cronbach alpha value for innovativeness & proac-
tiveness was .865 and for risk taking .671, respectively.
Growth was measured by three different indicators: the last
year’s sales growth percentage and average growth over the past
?ve years represented actual growth and a multi-item scale called
growth orientation (GO) represented future growth aspirations.
The items of the growth orientation scale were measured on a
Likert scale (1¼completely disagree, 5¼completely agree) and
worded as follows: (1) our purpose is to grow without compro-
mising on pro?tability, (2) we intend to expand our business to
new customer segments, and (3) we intend to expand our
product/service offerings. The ?nal scale was computed as the
average value of the items and its internal consistency was
satisfactory (Cronbach alpha¼.693).
The sales growth percentages and pro?tability measures were
obtained from the Voittoþ- database. Pro?tability was evaluated
as return on assets (ROA) over the years 2004–2007. The average
value and coef?cient of variation over the four years were used in
the analysis as indicators of ROA level and ROA variability,
respectively. Similar to Covin et al. (2006), we used ?rm-speci?c
control variables, such as ?rm age and size, to control for their
possible effect on ?rm’s growth and pro?tability. These measures
were also obtained from the Voittoþ database.
4. Results
The descriptive information of our key variables in the sample
is shown in Table 2. The median size of the respondent companies
was about two million euro in sales turnover and ten employees.
The largest companies had about 11 million euro turnover and 160
employees. The ages of the companies varied from three to more
than a hundred years, with an average of about 19 years.
The distributions of the combined entrepreneurial orientation
scale and also those of its two dimensions were normally
distributed with a mean value close to the midpoint of the scale.
The average risk-taking propensity was a bit lower than the mean
Table 1
Principal component loadings of the EO items.
Item Innovativeness
and
Proactiveness
Risk
Communality
Continuous renewal and
innovation are important
for our company
.81 .24 .71
We invest heavily in
developing new products,
services and business
practices
.81 .17 .68
In our company, new ideas
come up all the time
.79 .12 .64
We aim at being at the
forefront of development
in our business sector
.76 .22 .63
Lately we have launched
many new products/
services
.73 .14 .55
Our company often acts
before the competitors do
.63 .19 .43
In uncertain situations we
are not afraid to take
substantial risks
o.20 .82 .68
Bold action is necessary to
achieve our company’s
objectives
.32 .74 .64
We prefer the cautious line
of action even if some
opportunity might be lost
that way
À.20 À.70 .52
Eigenvalue 4.22 1.25
Cumulative % of variance 46.9 60.8
Principal Component Analysis with Varimax rotation. KMO measure of sampling
adequacy¼.846, Bartlett Chi Square¼.686 with 36 d.f., po.001, MSA for indivi-
dual items ranged from .73 to .93.
J. Soininen et al. / Int. J. Production Economics 140 (2012) 614–621 617
value of innovativeness and proactiveness. The median growth
percentages were around 10% over the last year and also as a ?ve-
year average. However the variation was large, ranging from 100%
decline over the last year to 487% increase. The overall level of
pro?tability in the sample was very good, as the average return on
assets was 19% last year and 16% over the past ?ve years. All the
pro?tability indicators were rather symmetrically distributed
around their mean, although there were a couple of small and
large outliers in the sample.
The hypotheses were tested using multiple linear regression
analysis and two-way analysis of variance. The basic assumptions
of ordinary least squares estimation were checked by analyzing the
residuals and tolerance values, and no violations were detected.
In order to test our ?rst hypothesis the following regression
equation is estimated:
Profitability
i
¼a
0
þb
1
ðLN_age
i
Þþb
2
ðLN_employees
i
Þþb
3
ðEO
i
Þþe
i
,
ð2Þ
where Pro?tability
i
denotes the pro?tability measure (Pro?tabil-
ity
1
: 1 year return on assets, Pro?tability
2
: 5 year average return
on assets. Terms LN_age
i
and LN_employees
i
are the natural
logarithms of ?rm age and number of employees used as a
control variables and EO
i
represents the level of ?rm’s entrepre-
neurial orientation. The results for our ?rst hypothesis regarding
the effect of EO on pro?tability are in Table 3. While the linear
regression model for the average pro?tability indicator is statis-
tically signi?cant at the 5% level, the coef?cients of determination
is only 5%, implying a poor ?t. Furthermore, only the control
variables age and size have signi?cant effects. Older ?rms have
lower pro?tability, and the return on assets is lower in larger
companies. In sum, hypothesis H1 fails to receive any support
from our empirical data.
In order to examine the effects of entrepreneurial orientation
on growth the following regression equation is estimated:
Growth
i
¼a
0
þb
1
ðLN_age
i
Þ þb
2
ðLN_employees
i
Þþb
3
ðEO
i
Þþe
i
, ð3Þ
where Growth
i
denotes the growth measure (Growth
1
: 1 year
growth %, Growth
2
: 5 year growth %, Growth
3
: growth orienta-
tion). Terms LN_age
i
and LN_employees
i
are the natural logarithms
of ?rm age and number of employees used as a control variables
and EO
i
represents the level of ?rm’s entrepreneurial orientation.
Results of the regressions are reported in Table 4.
The model ?t statistics indicate that all the models are
statistically signi?cant, R squares ranging from 7% for one-year
growth to 23% for growth orientation. Entrepreneurial orientation
has a strong positive effect on future growth aspirations and also
a weaker positive, statistically signi?cant effect on actual growth
in the past ?ve years. Thus our hypothesis H2 is supported. It is
also interesting to note the different effects of age and size: while
age has a negative effect on actual growth, size in turn is only a
positive determinant of growth orientation in the future. We also
tested the ?ve year employee growth rate in our model as an
indicator for growth, but the results were insigni?cant and the
model ?t was very low.
Table 2
Descriptive statistics.
N Mean Median Std. Deviation Minimum Maximum
Sales (1000h) 193 2740.39 1969.00 2049.83 .00 10,803.40
Employees 160 17.11 10.00 19.86 1 159
Firm age 192 18.98 17.00 11.98 3.00 106.00
Innovativeness–Proactiveness 192 3.49 3.50 .79 1.17 5.00
Risk taking 192 2.95 3.00 .83 1.00 4.67
EO combined 192 3.31 3.44 .69 1.44 4.89
Growth orientation 193 3.53 3.67 .87 1.00 5.00
Growth 1 year 190 .16 .11 .46 À1.00 4.87
Growth 5 years average 192 .24 .10 .87 À.30 10.81
ROA 1 year 193 .19 .15 .13 À.16 .69
ROA 5 years average 192 .16 .15 .19 À1.95 .61
RO-04 170 .15 .16 .21 À1.37 .80
ROA-05 178 .18 .14 .18 À.22 1.06
ROA-06 186 .19 .16 .17 À.18 1.05
ROA-07 191 .22 .18 .14 .03 .74
ROA mean 04–07 191 .19 .16 .13 À.13 .64
ROA std. deviation 04–07 186 .01 .07 .10 .00 .91
ROA coef?cient of variation 04–07 186 1.08 .47 3.75 .01 44.82
Table 3
Linear regression results, pro?tability as the dependent variable.
ROA ROA 5 year average
b t b t
(Constant) .35
nnn
4.56 .30
nnn
4.73
LN_age À.03
n
À1.77 À.028
n
À1.94
LN_employees À.02
n
À1.76 À.02
nn
À2.23
EO À.01 À.52 À.00 À.09
Model ?t R square F R square F
.04 2.14
n
.05 2.84
nn
nnn
po0.01.
nn
po0.05.
n
po0.1.
Table 4
Linear regression results, growth as the dependent variable.
Growth % 1 year Growth % 5 years
average
GO
b t b t b t
(Constant) .26 1.45 .135 1.14 1.31
nnn
2.89
LN_age À.11
nnn
À2.74 À.07
nn
À2.49 .03 .27
LN_employees .03 1.38 À.03 À1.45 .14
nn
2.20
EO .04 .99 .08
nnn
3.32 .54
nnn
5.94
Model ?t R square F R square F R square F
.07 3.90
nnn
.11 6.47
nnn
.230 15.02
nn
nnn
po0.01.
nn
po0.05.
n
po0.1.
J. Soininen et al. / Int. J. Production Economics 140 (2012) 614–621 618
The third hypothesis was tested with two-way analysis of
variance using the general linear model procedure, see Table 5.
The average level of ROA over past four years was the ?rst factor
in the analysis, and it was recorded into four levels. The second
factor was the coef?cient of variation over the same four year
time period, and it also had four levels.
The results indicate that both factors have statistically sig-
ni?cant main effects, and also a signi?cant interaction, together
explaining 13.4% of the variance. The main effects indicate that
the risk taking is highest among those ?rms which have the
highest pro?tability, and the risk taking is also highest in the
group where the ROA variation is the highest. Since, the interac-
tion term (ROA level ÂROA variation) is signi?cant we cannot
draw more conclusion based on the main effects, rather we have
to focus on the interaction effect. The nature of the interaction
effect is illustrated in Fig. 1.
First of all, the level of ROA seems to have a nonlinear almost
an inverse U-shaped relationship with risk taking as the highest
levels of risk taking are observed in the medium pro?tability
categories. Secondly, the relationship between the risk taking and
pro?tability is remarkably different when there is more year-to-
year variation in ROA, i.e. ?rm is riskier measured by accounting
?gures. In this group the relationship is U-shaped, meaning that
the levels of strategic risk taking are at the highest in the
categories of the most and the least pro?table ?rms. The level
of risk taking is remarkably high in the category of the most
pro?table ?rms. This implies that there is a positive relationship
between risk and pro?tability, as the ?nance theory postulates.
Also, if we ignore the category of the least pro?table ?rms the
level of risk taking is increasing when the pro?tability is increas-
ing this ?nding is also con?rming the positive relationship
between risk and pro?tability. Thus, our H3 is supported by the
empirical ?ndings.
5. Conclusion
Entrepreneurial orientation capturing such characteristics as
innovativeness, risk-taking and proactivity has become a very
popular concept that has received substantial conceptual
and empirical attention in modern entrepreneurship research. In
our view, EO also builds a bridge between empirical entrepre-
neurial research and modern strategic management, since one
can also regard EO as an operationalization of the main char-
acteristics of dynamic capabilities of the ?rm, such as sensing
weak signals and seizing the opportunities by investments (Teece,
2007). Highly importantly, our paper further relates strategic
management scienti?c area to the area of ?nance by discovering
a relationship between strategic risk taking and levels of ?nancial
pro?tability. From this perspective, it is natural to assume that EO
is able to capture some important aspects from entrepreneurial
behavior thus having a positive in?uence on ?rm pro?tability and
growth rate as well. These relationships have been widely
recognized in many empirical studies. Some researchers even
think that the EO is a key ingredient for ?rm success. In our
empirical study we focused on entrepreneurial orientation in
order to analyze to what extent it in?uences on ?rms’ growth
rate and to the level and variability of pro?tability in the context
of Finnish SMEs. Our approach to the EO–performance relation
differs from the prior EO literature in one important aspect, since
we separately assessed the in?uence of EO on pro?tability and on
growth. Moreover, we relate EO as internal risk measure to
measure realized level and variation of ?rm pro?tability. The
rationale behind this reasoning is the fact that when one is
measuring growth and pro?tability from the ?rm’s ?nancial
statements, one can easily note that these two dimensions can
be contradictory as well. Hence, a new approach is needed.
Moreover, these dimensions of performance are analyzed sepa-
rately to be able to conclude if risk taken, measured as EO, is
resulting SMEs to provide higher returns for investors.
Our ?rst hypothesis links entrepreneurial orientation with
pro?tability. In this case, our results do not support the assump-
tion that entrepreneurial orientation is positively related to
pro?tability of small ?rms. In our empirical ?ndings EO did not
have signi?cant effect on any of our three pro?tability measures.
Therefore, our results are inconsistent with the results of prior
literature supporting EO as affecting positively the ?rm pro?t-
ability (e.g. Kemelgor, 2002). When testing the ?rst hypothesis,
we used only pro?tability ?gures based on archival data whereas
in prior literature performance indicator has typically been a
combination of pro?tability, growth, and other performance
related measures, both subjective and objective (Zahra and
Covin, 1995; Lumpkin and Dess, 1996; Wang, 2008).
The empirical ?ndings of this study support our second hypoth-
esis, which stated that there is a positive relationship between
the entrepreneurial orientation of the ?rm and the ?rm’s rate of
growth. Our results revealed that EO has a strong and signi?cant
effect on the ?rm’s growth orientation. Very importantly, our study
Table 5
GLM results, risk taking as the dependent variable.
Source Type III
SS
Estimate t F Sig. Partial eta
squared
Corrected
model
16.93 1.74 .05 .13
Intercept 500.87 774.11 o.00 .82
ROA level 8.39 4.32 .01 .07
o5 À1.17 À2.25 .03 .03
5–15 À1.56 À2.96 o.00 .05
15–30 À1.41 À2.55 .01 .04
430 n.a.
ROA variation 5.82 3.00 .03 .05
o.20 À1.34 À2.56 .01 .04
.20–.50 À1.50 À2.89 o.00 .05
.50–1 À.89 À1.51 .13 .01
41 n.a.
ROA
level ÂROA
variation
14.11 2.42 .01 .11
Error 109.35 169 .65
Total 1727.90 185
Corrected
total
126.27 184
0.0
1.0
2.0
3.0
4.0
5.0
30
Return on Assets, level
E
s
t
i
m
a
t
e
d
M
a
r
g
i
n
a
l
M
e
a
n
s
o
f
R
i
s
k
t
a
k
i
n
g
Fig. 1. Relationship between risk taking and pro?tability.
J. Soininen et al. / Int. J. Production Economics 140 (2012) 614–621 619
also shows that there exists a signi?cant and positive effect on
actual sales growth rate of the past ?ve years. Our results hence
give support to the anticipation that entrepreneurial orientation is
fundamentally pursuing actual growth for ?rms. When thinking
about the ability to overcome recession this result tells us that the
more there are SME’s with strong entrepreneurial orientation
characteristics the better are the chances to get out of the downturn
and vice versa.
In light of our results, one could reason that the positive
relationship between EO and ?rm performance, found in prior
literature, is primarily caused by the growth factor. From
the ‘‘how to overcome recession’’ perspective relevant in this
article this result implies that it is more important to promote the
rapid, employment enhancing growth of the SMEs than to
improve their pro?tability. This ‘‘Keynesian view’’ should be
taken seriously when the government is creating incentives for
the SMEs during the recession. However, in the longer run,
the government should, of course, create incentives for the
pro?table growth by promoting entrepreneurship that makes it
possible to achieve and sustain competitive advantage. From this
longer run perspective our results indicate that the weak results
with respect to EO&pro?tability are mainly driven by risk
involved during the recession. This relationship is tested in the
third hypothesis.
As for our third hypothesis, the empirical results obtained
provide very interesting results concerning the EO dimensions and
?rm risk. Our results show that the ?rm’s risk-taking orientation is
signi?cantly positively related to higher variability in pro?tability.
Moreover, the interaction of risk taking and pro?tability indicates
that the ?rms with higher risk-taking pro?le end up to the higher
level of actual measured pro?tability. This in turn indicates that
risk-taking orientation of ?rms actually generates higher pro?t-
ability for ?rms as well. This ?nding signi?cantly also indicates
that for the SMEs the CAPM relation holds. To conclude, the results
of this paper indicate that political decision makers responsible for
economic policy should seriously consider how to create stronger
incentives to support SMEs that conduct growth actions with high
entrepreneurial orientation characteristics.
Nonetheless, our research does have some limitations. First,
the models used in this research are somewhat simple, we believe
it may be important to consider additional variables, such as
those related to the industry and to the ?rm’s ?nancial resources,
to be better able to capture the relationship between the EO and
the various dimensions of performance. Secondly, a longitudinal
design – rather than the current cross-sectional design – would
give us a better premiss to explore the causal relationships among
the research variables. Repeating our survey in the future will
mitigate this problem.
Future research on the construct of EO might lead us to
explore the relationship between the EO and how severe global
economic conditions, such as the latest economic crisis, are
affecting SMEs at the operational level, e.g. weather they have
to lay off employees or delay investments, etc.
References
Armstrong, J.S., Overton, T.S., 1977. Estimating nonresponse bias in mail surveys.
Journal of Marketing Research 14, 396–402.
Avlonitis, G.J., Salavou, H.E., 2007. Entrepreneurial orientation of SMEs, product
innovativeness, and performance. Journal of Business Research 60, 566–575.
Baird, I.S., Thomas, H., 1985. Toward a contingency model of strategic risk taking.
Academy of Management Review 10 (2), 230–243.
Bhuian, S.N., Menguc, B., Bell, S.J., 2005. Just entrepreneurial enough: the
moderating effect of entrepreneurship on the relationship between market
orientation and performance. Journal of Business Research 58, 9–17.
Black, F., Jensen, J.C., Scholes, M.S., 1972. The capital asset pricing model: some
empirical tests. In: Jensen, M.C. (Ed.), Studies in the Theory of Capital Markets.
Praeger, New York, pp. 79–121.
Bromilley, P., 1991. Testing a causal model of corporate risk taking and perfor-
mance. Academy of Management Journal 34 (1), 37–59.
Bullinger, H., 1999. Turbulent times require creative thinking: new European
concepts in production management. International Journal of Production
Economics 60–61, 9–27.
Carree, M.A., Thurik, A.R., 1998. Small ?rms and economic growth in Europe.
Atlantic Economic Journal 26 (2), 137–146.
Covin, J.G., Slevin, D.P., 1989. Strategic management of small ?rms in hostile and
benign environments. Strategic Management Journal 10 (1), 75–87.
Covin, J.G., Slevin, D.P., 1990. New venture strategic posture, structure, and
performance: an industry life cycle analysis. Journal of Business Venturing
5 (2), 123–135.
Covin, J.G., Green, K.M., Slevin, D.P., 2006. Strategic process effects on the
entrepreneurial orientation–sales growth rate relationship. Entrepreneurship
Theory and Practice 30 (1), 57–81.
Dimitratos, P., Lioukas, S., Carter, S., 2004. The relationship between entrepreneur-
ship and international performance: the importance of domestic environment.
International Business Review 13, 19–21.
Fama, E.F., Macbeth, J., 1973. Risk, return and equilibrium: some empirical tests.
Journal of Political Economy 81 (3), 607–636.
Fiegenbaum, A., Thomas, H., 1986. Dynamic and risk measurement. Perspectives
on Bowman’s risk-return paradox for strategic management: an empirical
study. Strategic Management Journal 7, 395–407.
George, G., Wood Jr., D.R., Khan, R., 2001. Networking strategy of boards:
implications for small and medium-sized enterprises. Entrepreneurship and
Regional Development 13 (3), 269–285.
Jantunen, A., Puumalainen, K., Saarenketo, S., Kyl ¨ aheiko, K., 2005. Entrepreneurial
orientation, dynamic capabilities and international performance. Journal of
International Entrepreneurship 3 (3), 223–243.
Karpak, B., Topcu, I., 2010. Small medium manufacturing enterprises in Turkey: an
analytic network process framework for prioritizing factors affecting success.
International Journal of Production Economics 125, 60–70.
Keh, H.T., Nguyen, T.T.M., Ng, H.P., 2007. The effects of entrepreneurial orientation
and marketing information on the performance of SMEs. Journal of Business
Venturing 22, 592–611.
Kemelgor, B.H., 2002. A comparative analysis of corporate entrepreneurial orien-
tation between selected ?rms in the Netherlands and the USA. Entrepreneur-
ship and Regional Development 14 (1), 67–87.
Leo´ n, A., Nave, J., Rubio, G., M., 2007. The relationship between risk and expected
return in Europe. Journal of Banking & Finance 31, 495–512.
Lintner, J., 1965. The valuation of risk assets and selection of risky investments
in stock portfolios and capital budgets. Review of Economics and Statistics
47, 13–37.
Lumpkin, G.T., Dess, G.G., 1996. Clarifying the entrepreneurial orientation con-
struct and linking it performance. Academy of Management Review 21 (1),
135–172.
Lumpkin, G.T., Dess, G.G., 2001. Linking two dimensions of entrepreneurial
orientation to ?rm performance. Journal of Business Venturing 16, 429–451.
Lusk, W.J., Halperin, M., Bern, M., 2008. Towards reformulation of the capital asset
pricing model (CAPM) focusing on idiosyncratic risk and Roll’s meta-analysis:
methodological approach. Journal of Financial Management and Analysis
21 (1), 1–23.
Madsen, E.L., 2007. The signi?cance of sustained entrepreneurial orientation on
performance of ?rms—a longitudinal analysis. Entrepreneurship & Regional
Development 19, 185–204.
Miller, D., 1983. The correlates of entrepreneurship in three types of ?rms.
Management Science 29 (7), 770–791.
Mintzberg, H., 1973. Strategy-making in three modes. California Management
Review 16 (2), 44–53.
Moreno, A.M., Casillas, J.C., 2008. Entrepreneurial orientation and growth of SMEs:
a causal model. Entrepreneurship Theory and Practice 32 (2), 507–528.
Nickel, M.N., Rodriguez, M.C., 2002. A review of research on the negative
accounting relationship between risk and return: Bowman’s paradox. Omega
30, 1–18.
Paul, S., Whittam, G., Wyper, J., 2007. The pecking order hypothesis: does it apply
to start-up ?rms? Journal of Small Business and Enterprise Development
14 (1), 8–21.
Rauch, A., Wiklund, J., Lumpkin, G.T., Frese, M., 2009. Entrepreneurial orientation
and business performance: an assessment of past research and suggestions for
the future. Entrepreneurship Theory and Practice 33 (3), 761–778.
Runyan, R., Droge, C., Swinney, J., 2008. Entrepreneurial orientation versus small
business orientation: What are their relationships to ?rm performance?
Journal of Small Business Management 46 (4), 567–588.
Sharpe, W.F., 1964. Capital asset prices: a theory of market equilibrium under
conditions of risk. Journal of Finance 19, 425–442.
Smart, D.T., Conant, J.S., 1994. Entrepreneurial orientation, distinctive marketing
competencies and organizational performance. Journal of Applied Business
Research 10, 28–38.
Stewart, W.H., Roth, P.L., 2001. Risk propensity differences between entrepreneurs
and managers: a meta-analytic review. Journal of Applied Psychology 86 (1),
145–153.
Teece, D.J., 2007. Explicating dynamic capabilities. The nature and microfounda-
tions of sustainable enterprise performance. Strategic Management Journal
28, 1319–1350.
Wang, C.L., 2008. Entrepreneurial orientation, learning orientation, and ?rm
performance. Entrepreneurship Theory and Practice 34 (3), 635–657.
J. Soininen et al. / Int. J. Production Economics 140 (2012) 614–621 620
Wiklund, J., 1999. The sustainability of the entrepreneurial orientation–
performance relationship. Entrepreneurship Theory and Practice 24 (1),
37–48.
Wiklund, J., Shepherd, D., 2003. Knowledge-base resources, entrepreneurial
orientation, and the performance of small and medium-sized businesses.
Strategic Management Journal 24 (12), 1307–1314.
Wiklund, J., Shepherd, D., 2005. Entrepreneurial orientation and small business
performance: a con?gurational approach. Journal of Business Venturing 20
71–91
Zahra, S.A., Covin, J.G., 1995. Contextual in?uences on the corporate
entrepreneurship–performance relationship: a longitudinal analysis. Journal
of Business Venturing 10, 43–58.
J. Soininen et al. / Int. J. Production Economics 140 (2012) 614–621 621
ARTICLE II
Soininen, J ., Puumalainen, K., Sjögrén, H. and Syrjä, P. (2012).
THE IMPACT OF GLOBAL ECONOMIC CRISIS ON SMES – DOES
ENTREPRENEURIAL ORIENTATION MATTER?
Management Research Review, 35 (10), 927-944.
Copyright © Emerald Group Publishing Ltd. Reproduced with permission.
F
o
r
P
e
e
r
R
e
v
i
e
w
The impact of global economic crisis on SMEs – does
entrepreneurial orientation matter?
Journal: Management Research Review
Manuscript ID: MRR-Jun-2011-0133.R2
Manuscript Type: Original Article
Keywords: Small business, Entrepreneurial orientation, Recession, Performance
http://mc.manuscriptcentral.com/mrr
Management Research Review
F
o
r
P
e
e
r
R
e
v
i
e
w
1
The impact of global economic crisis on SMEs – does entrepreneurial orientation
matter?
1. Introduction
Between late 2007 and the second quarter of 2009, the global economy slid into a severe
economic crisis (Naidoo, 2010). This global economic crisis has not only been severe for
large enterprises, but also for small and medium-sized enterprises (SMEs), which have
become an increasingly important component of economic development (Paul, Whittam &
Wyper, 2007).The international financial crisis caused an economic downturn in Finland, too.
For instance, since the last quarter of 2008 the number of layoffs, order cancellations and
financial difficulties has increased drastically, which has led among others to a 30 per cent
increase in the number of bankruptcies among the Finnish SMEs. This recent sudden and
extraordinary decline has shown how turbulent and vulnerable the international and also the
national business environment can nowadays be. Theory and empirical evidence suggest that
major economic crises have profound effects on firms, but the effects are uneven between
firms (Narjoko & Hill, 2007). In this framework it is essential to further investigate if there
are some firm-specific strategic factors that enable SMEs to better survive such challenging
changes in the surrounding environment. For decades economic recessions and firms in
these harsh environments have offered researchers a fruitful setting. A sizeable body of
literature called the turnaround strategy literature (e.g. Pearce II & Robbins, 1994; Laitinen,
2000; Cater & Schwab, 2008; Naidoo, 2010) has focused on the strategies used by firms to
survive and meet the performance targets during recessionary periods. Some of these
turnaround strategies resemble very closely the dimensions of the entrepreneurial orientation,
and we are therefore interested to see if the entrepreneurial orientation has a positive effect on
firms struggling to survive the recession.
During the last few decades, entrepreneurial orientation (EO) has emerged as a major
construct within the strategic management and entrepreneurship literature. Covin, Green &
Slevin (2006) define EO as a strategic construct whose conceptual domain includes certain
firm-level outcomes and management-related preferences, beliefs, and behaviors as expressed
among a firm’s top-level managers. Runyan, Droge & Swinney (2008) argue that EO is
evidenced through visible entrepreneurial tendencies toward innovativeness, proactiveness
and risk taking. Miller (1983) and later on Covin & Slevin (1989) operationalized these
constructs and see them as central to EO. According to Rauch et al. (2009) these dimensions
of EO can be defined as follows: Innovativeness represents creativity and experimentation
through the introduction of new products/services as well as technological leadership via
R&D in new processes. Risk taking describes the nature of easily venturing into the unknown,
borrowing heavily, and/or committing remarkable resources to ventures in uncertain
environments. Proactiveness is an opportunity-seeking, forward-looking perspective
characterized by the introduction of new products and services ahead of competition and
acting in anticipation of the future demand.
In recent years there has been an increased focus on the relationship between a firm’s
strategic orientation and firm performance (Madsen, 2007). Earlier studies have generally
found a positive relationship between EO and firm performance (Madsen, 2007; Wiklund &
Shepherd, 2005; Jantunen et al, 2005). However, there are also studies where no such
relationship has been found (Smart & Conant, 1994). Typically, the measure that has been
used to assess firm performance has been a combination of both profitability measures and
growth measures (Avlonitis & Salavou, 2007; Wiklund, 1999; Covin & Slevin, 1989). There
are also a few studies that have merely explored the relationship between EO and firm growth
Page 1 of 19http://mc.manuscriptcentral.com/mrr
Management Research Review
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
F
o
r
P
e
e
r
R
e
v
i
e
w
2
(Moreno & Casillas, 2008; Covin, Green & Slevin, 2006). The findings of these studies have
confirmed that there is a positive relationship between EO and the firm’s rate of growth.
The purpose of this study is to ascertain if EO can mitigate the negative effects of
economic crisis both on firm’s operations and on firm’s financial performance. This study
contributes to the EO literature in two ways: first, as far as we know, this is the first work to
link EO with the effects of recession at the firm’s operational level. Secondly, as discussed in
the paragraph above, the relationship between EO and performance is well known, but we
expand this knowledge by taking the EO-performance relationship into the context of
recession.
The article is structured as follows: After the introductory section is a section that
defines the concept, reviews the relevant literature and presents the research hypotheses.
Then comes a description of the methodology used in empirical research. In the following
section, the main findings are presented. Finally, section five summarizes the results along
with their implications.
2. Theoretical Framework and Hypotheses
A substantial amount of research has examined the concept of entrepreneurial orientation
(EO) thus it has become a central concept in the domain of entrepreneurship (Covin, Green &
Slevin, 2006). Rauch et al. (2009) point out in their meta-analysis that more than 100 studies
dealing with EO have been conducted, which has led to a wide acceptance of the conceptual
meaning and relevance of the concept.
The Dimensions of EO
Miller (1983) conceptualized the three focal dimensions of EO as innovativeness, risk
taking and proactiveness and these three dimensions have since been used consistently in the
literature (Dimitratos et al., 2004; Kemelgor, 2002). Lumpkin and Dess (1996) describe
innovativeness as follows: Innovativeness reflects a firm’s tendency to engage in and support
new ideas, novelty, experimentation, and creative processes that may result in new products,
services, or technological processes. Innovativeness represents a basic willingness to depart
from existing technologies or practices and venture beyond the current state of the art.
Lumpkin and Dess (1996) see innovativeness as an important component of an EO, because
it reflects an important means by which firms pursue new opportunities. According to Baird
and Thomas (1985) there are three different types of strategic risk taking, such as venturing
into the unknown, heavy borrowing, and/or committing large portions of corporate assets in
uncertain environments. Similarly, Lumpkin and Dess (1996) state that firms with an
entrepreneurial orientation are often typified by risk-taking behavior, such as incurring heavy
debts or making significant resource commitments in the interests of obtaining high returns
by seizing opportunities in the marketplace. Rauch et al., (2009) describe proactiveness as an
opportunity-seeking, forward-looking perspective characterized by the introduction of new
services and products ahead of the competition and acting in anticipation of future demand.
Besides these three most commonly used dimensions Lumpkin and Dess (1996) argue
that two additional dimensions, competitive aggressiveness and autonomy, are also salient
components of EO. Lumpkin and Dess (2001) define these two additional dimensions as
follows: Competitive aggressiveness is said to reflect the intensity of a firm’s effort to
outperform industry rivals, characterized by a strong offensive posture and a forceful
response to competitor’s actions. Autonomy is independent action by an individual or team
aimed at bringing forth a business concept or vision and carrying it through to completion.
The usage of the EO model with all the aforementioned five dimensions has been rare in
the EO literature when compared with the use of the model with three dimensions. Rauch et
al. (2009) show in their meta-analysis that only in one study (George et al., 2001) has been
Page 2 of 19http://mc.manuscriptcentral.com/mrr
Management Research Review
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
F
o
r
P
e
e
r
R
e
v
i
e
w
3
used all these five dimensions. Whereas, in 29 studies (e.g. Covin, Prescott & Slevin, 1990;
Covin et al., 1994; Slater & Narver, 2000; Bhuian et al., 2003; Wiklund & Shepherd 2003)
have been used these same three dimension as we are using in our study.
Rauch et al. (2009) state that the focal dimensions of EO are usually highly
intercorrelated with each other, which leads to combining these dimensions into one single
factor. In the EO literature there is no solid consensus on the dimensionality of the EO
construct. On the one hand, scholars such as Covin & Slevin (1989) argue that the EO
construct is best viewed as a unidimensional concept and on the other hand, for example,
Lumpkin and Dess (2001) suggest that the dimensions of EO may relate differently to firm
performance. In this study we use the latter approach, allowing the dimensions of EO to have
different effects on the firm’s operations and financial performance during economic
downturn.
The EO-Performance Relationship
The modern business environment is one in which the pace of change is fast and product
and business model lifecycles are shortened, the future profit streams from existing
operations are uncertain and businesses need to constantly seek out new opportunities.
Therefore firms may benefit from adopting an EO (Rauch et al., 2009). Wiklund (1999)
relates the positive influence of EO on performance to the first-mover advantages and the
tendency to take advantage of emerging opportunities implied by EO. Zahra and Covin
(1995) argue that firms with EO can “skim” the markets ahead of their competitors by
targeting premium market segments and charging high prices. Wiklund (1999) points out that
these firms monitor market changes and respond rapidly, thus capitalizing on emerging
opportunities. Innovation keeps them ahead of their competitors, gaining a competitive
advantage that leads to improved financial results. Proactiveness gives firms the capability to
present new products or services to the market before their competitors, which also gives
them a competitive advantage. Furthermore, Wiklund (1999) also states that there is a reason
to believe that the relation between EO and performance may be especially strong in the
context of small firms. Most likely, smallness per se enhances flexibility and innovation but
limits competitiveness in other strategic dimensions.
Moreno and Casillas (2008) point out that the fairly extensive body of literature on the
relationship between EO and firm performance is dominated by two types of work. Firstly,
there are studies that present general models describing the characteristic of the said
relationship, identifying the moderating and mediating variables and striving to establish
wide-ranging propositions (Stam & Elfring, 2008; Marino et al., 2002; Covin & Slevin,
1991). Secondly, as Moreno and Casillas (2008) note, a wide range of studies have attempted
to empirically verify partial models of said relation. This field of research contains, in an
isolated and independent manner, some of moderating variables, those related either to
environment (Tan & Tan, 2005) or to the firm’s internal dimensions (Wang, 2008).
Several empirical studies have found that firms with high EO perform better than firms
with low EO, for example Keh, Ngyuen & Hg (2007) found that EO plays an important role
in enhancing firm performance. Similarly, Wiklund and Shepherd (2003) found a strong
correlation between EO and performance, whereas Wiklund (1999) showed that investments
in EO may be worthwhile for small firms since there is a positive relationship between EO
and performance and the relationship actually increases over time. On the other hand, some
studies have shown that the relationship between EO and performance is not so
straightforward. Bhuian et al. (2005) found that entrepreneurship is one of the key elements
in organizational success, but the relationship is shaped like an inverted U, meaning that a
high degree of entrepreneurship is not always desirable in certain market and structural
conditions. Similarly, Tang et al. (2008) found a curvilinear relationship between EO and
Page 3 of 19http://mc.manuscriptcentral.com/mrr
Management Research Review
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
F
o
r
P
e
e
r
R
e
v
i
e
w
4
firm performance in Chinese firms, implying that blindly striving to pursue as high EO as
possible may under some conditions lead to adverse outcomes. Besides the relationship
between EO and financial performance some studies have found that EO also has a positive
influence on new product development, product innovativeness, and number of patents
(Avlonitis & Salavou, 2007; Friskhammar & Hörte, 2007; Kemelgor, 2002).
The literature shows that the variety of measures that have been used to assess firm
performance has been fairly diverse. Several studies (Runyan, Droge & Swinney, 2008;
Madsen, 2007; Lumpkin & Dess, 2001; Wiklund & Shepherd, 2003) have used perceived
performance indicators to assess firm performance. The items used to form the performance
indicator were typically based on the manager’s subjective views about the firm’s
profitability, growth, market share in relation to its main competitors. On the other hand,
some studies (Covin, Green & Slevin, 2006; Zahra & Garvis, 2000) have utilized secondary
data to capture both the growth and profitability dimension of company financial
performance. For example, Zahra & Covin (1995) combined measures of return on assets
(ROA), return on sales (ROS) and growth into a single performance indicator. Non-financial
data can also be used in entrepreneurship research to assess the perceptions of the SME’s
management regarding the performance of the firm because of a strong correlation between
financial and non-financial data (Covin, 1991). However, this kind of an approach has been
used somewhat infrequently in the literature (Rauch et al., 2009). One common factor for the
performance indicators based either on perceived data or secondary data is the fact that in
both cases the indicator contains growth measures and profitability measures. According to
Moreno and Casillas (2008) such an approach may not be the most suitable because growth
dimension and profitability dimension are sometimes contradictory and should therefore not
be combined into one single indicator.
As mentioned earlier, Lumpkin and Dess (2001) suggest that the dimensions of EO may
relate differently to firm performance. Therefore, in the context of the recession, we
hypothesize as follows:
H1a: The more innovative and proactive firm is, the less its financial
performance will be affected by the crisis
H1b: The more risk-taking firm is, the more its financial performance will be
affected by the crisis.
Turnaround Strategies
Carter and Schwab (2008) define turnaround strategies as a set of consequential,
directive long-term decisions and actions targeted at the reversal of a perceived crisis that
threatens the firm’s survival. Moreover, Laitinen (2000) carries the definition further as
defining a turnaround strategy as a strategy that companies apply when responding to
uncertainty and changes in the environment and attempting to turn threats into opportunities
during a deep recession.
Pearce II & Robbins (1994) argue that firms in economic distress may undertake
recovery implementing recovery strategies, which are identified as primarily entrepreneurial-
oriented, primarily efficiency-oriented, or a combination of both. Pearce II & Robbins (1994)
characterize the difference between these two strategies as follows: Entrepreneurial recovery
strategies involve actions to “do things differently” whereas efficiency recovery strategies
entail actions designed to “do basically the same things on a smaller, more efficient scale”.
These entrepreneurial recovery strategies come close to the innovation dimension of EO,
since they involve reformulations of firm’s products, services, markets, or principal
technologies in ways that represent a new or radically altered competitive posture. The
findings of Pearce II & Robbins indicate that firms that experienced external cause downturns
Page 4 of 19http://mc.manuscriptcentral.com/mrr
Management Research Review
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
F
o
r
P
e
e
r
R
e
v
i
e
w
5
were more successful in their turnaround efforts when they emphasized entrepreneurial
activities in the recovery response. Furthermore, Pearce II & Michael (2006) also show that
innovative firms which introduce new products especially during a recession can be very
successful.
Features similar to the proactiveness component of the EO have also been beneficial for
companies struggling with unfavorable economic conditions. Laitinen (2000) notes that
companies that have been in decline have managed a sharp and sustained recovery by
constantly monitoring their environment, seeking opportunities and making improvements.
Therefore, we hypothesize the following:
H2a: The more innovative and proactive firm is, the less its operations will be
affected by the crisis.
The risk taking component of EO is characterized by committing a large amount of
resources to uncertain ventures and borrowing heavily. In uncertain and recessionary periods
such behavior may be detrimental to the companies. Geroski & Gregg (1996) studied the
effects of recession on firms in the UK. They showed that firms which were extremely
severely affected by the recession were firms which had higher ratios of debt to assets than
firms which were less severely affected by the recession. Similarly, Ofek (1993) showed that
highly-leveraged firms responded faster than their less-leveraged counterparts to financial
distress. The highly-leveraged firms took actions such as laying off employees and cutting
dividends. Keeping the heavy borrowing nature of the risk taking component in mind, we
hypothesize the following:
H2b: The more risk-taking firm is, the more its operations will be affected by
a crisis.
3. Research Method
Sample and Data Collection
The empirical data used to test the hypotheses were drawn from a mail survey conducted
in spring 2009 by means of a structured questionnaire. The initial population consisted of
Finnish small private limited companies (they typically have few shareholders and are usually
owner-managed family businesses) with a sales turnover between one and 10 million Euros.
Hypotheses were tested in a multiple industry setting, because of a greater generalizability. A
total of 13,495 firms were identified from the Voitto+- database, and a systematic random
sample of 1,026 firms was drawn. The pre-tested survey questionnaire with an introductory
cover letter was mailed to the respondents, who were assured of confidentiality and promised
a summary of the results. A reminder was sent to those who had not responded within two
weeks. Final responses were received from 194 companies, yielding a satisfactory effective
response rate of 18.9 percent (194/1,026). It was possible to obtain financial information
about the companies via Voitto+ database, a commercial database containing financial
statements of over 82,000 Finnish firms. The financial measures used in this study are based
on the financial statements of 2009. Non-response bias was checked on a number of key
variables by comparing the early (first-round) respondents with the late respondents
(following the suggestions of Armstrong and Overton, 1977) and no significant differences
were found between these two groups.
Measures
Page 5 of 19http://mc.manuscriptcentral.com/mrr
Management Research Review
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
F
o
r
P
e
e
r
R
e
v
i
e
w
6
We utilize nine items to capture the three dimensions of EO conceptualized by Miller
(1983). The items are based on the work of Covin and Slevin (1990). However, they were
slightly adapted to fit better with the context of Finnish small enterprises. A principal
component analysis of the EO items (see Table 1) resulted in two components explaining
together 61% of the variance in the items. The items measuring innovativeness and
proactiveness merged into the first component, while risk-taking items loaded highly on the
second component. The internal consistency of the scales was good, as the Cronbach’s alpha
values were .865 for innovativeness/proactiveness and .671 for risk-taking respectively.
Table 1.
Principal Component Loadings of the EO Items
Item Innovativeness &
Proactiveness
Risk
taking
Communality
Continuous renewal and innovation are important for
our company (I)
.81 .24 .71
We invest heavily in developing new (I) products,
services and business practices.
.81 .17 .68
In our company, new ideas come up all the time. (I) .79 .12 .64
We aim at being at the forefront of development in our
business sector. (P)
.76 .22 .63
Lately we have launched many new products/
services.(I)
.73 .14 .55
Our company often acts before the competitors do.(P) .63 .19 .43
In uncertain situations we are not afraid to take
substantial risks.(R)
.20 .82 .68
Bold action is necessary to achieve our company’s
objectives. (R)
.32 .74 .64
We prefer the cautious line of action even if some
opportunity might be lost that way. (R, Reversed)
-.19 -.69 .52
Eigenvalue 4.22 1.25
Cum % of variance 46.90 60.80
Principal Component Analysis with Varimax rotation. KMO measure of sampling adequacy =.846, Bartlett Chi
Square= 686 with 36 d.f., p=.000, MSA for individual items ranged from .73 to .93. I= innovativeness, P=
proactiveness, R=risk taking
The items of different operations were adapted from scales used by Geroski and Gregg
(1993). They found that some firms were more severely affected by the recession than others.
They also identified the parts of operations which were most affected. Their survey contained
32 detailed questions. The questions were divided into three main sections: “the effects of the
recession”, “human resource management” and “company organization”. The aim was to
ascertain how severely the firms were affected by the recession; how much the recession
affected their trading position, pay arrangements, their workforce composition and their
potential for financing (credit limits by banks). In our questionnaire some of the original
items were omitted as they were not deemed suitable for small Finnish firms. The final
measure included 20 items all assessed on a five-point Likert scale with the anchors 1 =
totally disagree, 5 = totally agree, see Table 2 for exact item wordings and factor analysis
results.
In a principal component analysis we were able to identify six dimensions explaining 64
percent of total variance. The dimensions were 1) impact on sales and profitability (4 items),
2) impact on short-term financing (5 items), 3) impact on long-term financing (3 items), 4)
impact on personnel (2 items), 5) impact on the competitive situation (3 items) and 6) impact
on payment terms (3 items). We computed the mean score of items to represent each of the
Page 6 of 19http://mc.manuscriptcentral.com/mrr
Management Research Review
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
F
o
r
P
e
e
r
R
e
v
i
e
w
7
six dimensions, and additionally a total summed score of all 20 items to represent the
perceived total impact of the economic downturn.
Table 2.
Principal Component Loadings of the Effects of Economic Downturn
Item
Component
1 2 3 4 5 6
The downturn has decreased our sales .85 .11
The downturn has decreased our profitability .84 .15 .17
The crisis makes our operations harder overall .74 .23 .14 .16
Customers have canceled their orders .44 .30 .34 .22
We have not been able to pay dividends .77 .18 .11
We have cut down the principal owner’s salary .12 .66 .14 .22
It has been hard to get financing .12 .66 .41
Lack of financing jeopardizes our future .17 .64 .54
The crisis increases the risk of bankruptcy .40 .61 .34
We have canceled investments due to lack of financing .14 .25 .79 .17
We have delayed our investments .14 .14 .72 .30
Our interest margin has been raised .15 .60 -.23 .28
We have dismissed personnel .12 .82 .12
We have laid off personnel .23 .16 .79
We have outsourced our operations -.16 .31 .73
We’ve had to lower prices .38 -.13 .13 .70 .13
Competition has become more aggressive .26 .16 .58 .27
Our customers’ terms of payment have become longer .10 .84
Our credit losses have increased .18 .16 -.18 .73
Our suppliers have tightened their payment terms -.16 .13 .41 .12 .18 .46
Eigenvalue 5.04 2.49 1.75 1.34 1.10 1.06
Cum % of variance 25.19 37.65 46.42 53.11 58.63 63.93
Extraction Method: Principal Component Analysis, Rotation Method: Varimax with Kaiser Normalization,
Rotation converged in 9 iterations,
The measures for financial performance were obtained from the Amadeus database. We
included financial measures representing scale, liquidity, and profitability over the three-year
period from 2007 to 2009, which was the most recent year available for the majority of the
companies at the time of the study. The scale of the company was measured by the number of
employees, operating revenue in thousands of Euros, and total assets in thousands of Euros.
The liquidity measure was current ratio, and profitability measures included return on total
assets as a percentage, and profit margin percentage.
4. Results
The descriptive information of our key variables in the sample is shown in Table 3. The
average size of the respondent companies was about 2.3 million Euros in sales turnover and
Page 7 of 19http://mc.manuscriptcentral.com/mrr
Management Research Review
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
F
o
r
P
e
e
r
R
e
v
i
e
w
8
18 employees. The largest companies had about 13 million Euro turnover and 150
employees. The ages of the companies varied from three to more than a hundred years, with
an average of about 19 years.
The distributions of the two dimensions of entrepreneurial orientation were normally
distributed with a mean value close to the midpoint of the scale. The average risk taking
propensity was slightly lower than the mean value of innovativeness and proactiveness. The
perceived impacts of the economic downturn at the time of the study were highest in terms of
sales and profitability, followed by more aggressive competition and less favorable terms of
payment. On the other hand, the respondents did not report many impacts on their financing
opportunities or personnel. On average, the volume of the companies had increased from
2007 to 2008, but then decreased in 2009. The decrease was most dramatic in operating
revenues as its average value in 2009 was 22 percent lower than the 2008 average. The
number of employees and total assets decreased only 11 percent and 2.4 percent respectively.
The liquidity as measured by current ratio had increased throughout the three-year period.
Both the profitability ratios had decreased since 2007, and the drop from 2008 to 2009 was
greater than that from 2007 to 2008.
Table 3.
Descriptive Statistics
Variable N Minimum Maximum Mean Standard
Deviation
Firm age 192 4.00 107.00 12.00 11.98
Sales (1000 €) 192 242.00 10803.40 2045.50 2049.83
Innovativeness-proactiveness 192 1.17 5.00 3.50 .79
Risk-taking 192 1.00 4.67 2.95 .83
International sales (percent) 185 .00 100.00 10.39 23.52
Impact on sales and profits 193 1.00 5.00 3.36 .97
Impact on short-term financing 190 1.00 5.00 1.74 .85
Impact on long-term financing 189 1.00 5.00 1.91 .94
Impact on personnel 190 1.00 5.00 1.92 1.26
Impact on competition 193 1.00 5.00 2.87 .98
Impact on terms of payment 192 1.00 4.67 2.57 .90
Overall impact 190 21.00 81.00 47.85 11.91
Operating revenue 2009 (1000€) 177 .00 12759.00 2349.78 2025.50
Operating revenue 2008 (1000€) 182 18.00 21889.31 3018.75 2783.04
Operating revenue 2007(1000€) 178 486.16 12630.56 2701.30 2052.52
Number of employees 2009 138 1.00 150.00 17.98 20.91
Number of employees 2008 130 1.00 186.00 20.25 27.49
Number of employees 2007 152 1.00 159.00 16.74 19.93
Total assets 2009 (1000€) 177 85.00 82202.76 2062.00 6374.26
Total assets 2008 (1000€) 182 121.00 73841.60 2112.91 5745.74
Total asset 2007 (1000€) 178 204.00 14221.56 1597.69 2085.69
Current ratio 2009 177 .06 82.24 4.16 8.04
Current ratio 2008 182 .08 42.72 3.16 4.01
Current ratio 2007 178 .28 20.94 2.78 2.83
Return on total assets 2009
(percent)
176 -83.72 59.21 8.94 18.14
Return on total assets 2008
(percent)
182 -36.00 71.46 15.13 15.69
Return on total assets 2007
(percent)
178 -2.83 64.84 19.63 13.54
Profit margin 2009 (percent) 174 -33.86 66.20 5.38 11.26
Profit margin 2008 (percent) 181 -41.44 61.29 7.91 10.77
Profit margin 2007 (percent) 178 -2.97 72.94 10.45 9.88
Page 8 of 19http://mc.manuscriptcentral.com/mrr
Management Research Review
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
F
o
r
P
e
e
r
R
e
v
i
e
w
9
The first hypothesis concerned the effects of EO dimensions on financial performance.
The results of multiple linear regressions with financial performance indicators as dependent
variables are shown in Table 4. In these regression models we predict the financials of 2009
using the 2008 values as control variables and EO dimensions as independent variables. The
models for the two volume indicators (operating revenue and total assets) give very similar
results. The R squares are above .80, the lagged financial indicator has a positive coefficient
with a very large t-value, and the innovativeness/proactiveness dimension has a significant
positive effect while risk-taking is not significant. Thus the more innovative and proactive
firms suffered less in terms of operations volume. The liquidity and profitability models are
also significant but the R squares are somewhat lower than in the volume models. The
profitability and liquidity measures are largely dependent on the previous year’s values, but
to a notably lesser extent than the volume measures. Risk-taking has negative effects which
are significant or close to significance. This means that the more risk-taking a company is,
the more its liquidity and profitability decreased during the crisis.
In sum, H1a is partly supported as innovativeness/proactiveness has positive effects on
revenues and assets, but no effect on profitability or liquidity. H1b is partly supported as risk
taking has no effect on revenues or assets, but has negative effects on liquidity and
profitability.
Table 4
Regression Results for Financial Performance
Dependent variable: Operating revenue 2009 (thousand euros)
Independent
variables
Parameter estimate
b
Standard error
of b
t-value p-value
Constant -185.43 320.83 -.58 .56
Operating revenue
2008
.64*** .02 27.39
With this detailed information in relation to entrepreneurial orientation in small and medium sized enterprises during economic crisis.
Juha Soininen
ENTREPRENEURIAL ORIENTATION IN
SMALL AND MEDIUM-SIZED ENTERPRISES
DURING ECONOMIC CRISIS
Acta Universitatis
Lappeenrantaensis 526
Thesis for the degree of Doctor of Science (Economics and Business Administration)
to be presented with due permission for the public examination and criticism in the
Auditorium of the Student Union House at Lappeenranta University of Technology,
Lappeenranta, Finland, on the 12th of September, 2013, at noon.
Supervisors Docent, Ph.D. Minna Martikainen-Peltola
Hanken School of Economics
Finland
Professor Kaisu Puumalainen
School of Business
Lappeenranta University of Technology
Finland
Reviewers Professor Mervi Niskanen
Business School
University of Eastern Finland
Finland
Professor Doctor Sascha Kraus
Institute for Entrepreneurship
University of Liechtenstein
Liechtenstein
Opponent Professor Mervi Niskanen
Business School
University of Eastern Finland
Finland
ISBN 978-952-265-446-5
ISBN 978-952-265-447-2 (PDF)
ISSN-L 1456-4491
ISSN 1456-4491
Lappeenrannan teknillinen yliopisto
LUT Yliopistopaino 2013
ABSTRACT
J uha Soininen
ENTREPRENEURIAL ORIENTATION IN SMALL AND MEDIUM-SIZED
ENTERPRISES DURING ECONOMIC CRISIS
Lappeenranta, 2013
86 p.
Acta Universitatis Lappeenrantaensis 526
Diss. Lappeenranta University of Technology
ISBN 978-952-265-446-5, 978-952-265-447-2 (PDF), ISSN-L 1456-4491, ISSN 1456-4491
The economic importance of small and medium-sized enterprises (SMEs) and
entrepreneurship has increased significantly in recent decades and entrepreneurial activity and
SMEs are deemed vital to economic progress. Therefore, it is justifiable to study how small
firms and entrepreneurs can enhance their performance and emergence in the turbulent
economic environment.
The concept of entrepreneurial orientation (EO) has recently attracted considerable attention
in the field of entrepreneurship research. EO generally refers to a firm’s propensity to be
innovative, to be proactive and to take risks. A majority of EO studies so far have found that
adopting EO associated entrepreneurial behaviors will help firms to create or sustain a high
level of performance.
This dissertation explores the main drivers and performance implications of EO for SMEs in
time of economic crisis. Hence the first objective of this dissertation is to examine the
performance implications of EO and to test the role of EO on how firms are treated by the
crisis at operative level. The second objective is to expand the prevailing understanding of
determinants of EO by exploring the relationship between owner's work related values,
attitudes, demographic characteristics, firm’s financial resources and EO.
EO was found to be a significant and positive factor behind a firm’s long run growth. Hence it
can be said that EO has positive implications for firm performance. But on the other hand,
during a time of economic crisis the different dimensions of EO had both positive and
negative effects on performance of SMEs. The performance implications varied across
different stages of the crisis and were also dependent on what measure was used for
measuring the performance. The main drivers of EO in SMEs were the personal work related
values of the entrepreneur and his/her prior experience as an entrepreneur. The intrinsic work
values related to interest, responsibility, challenge, self-development or intellectual
stimulation and values related to status, power, achievement and recognition had a positive
effect on the level of EO. On the other hand, extrinsic values related to high income, material
possessions, benefits such as generous holidays, job security, and comfort through good
working conditions decreased the level of EO.
Keywords: entrepreneurial orientation, small and medium-sized enterprises, performance,
economic crisis, work values, attitudes, behavior.
UDC: 65.017.2/.3:65.012:338.124
ACKNOWLEDGEMENTS
This project started in spring 2009 and now four years later it seems to be nearing completion.
Now it is time to thank the many people who have supported and helped me during these
years. I am especially grateful to my supervisors Docent Minna Martikainen and Professor
Kaisu Puumalainen, who have guided and supported me throughout the process.
I am also grateful to my great co-authors Kalevi Kyläheiko, Kaisu Puumalainen, Minna
Martikainen, Sami Saarenketo, Helena Sjögrén, Pasi Syrjä, and Susanne Durst. It has been a
privilege to work with such talented writers.
Further, I would like to thank the distinguished pre-examiners of this dissertation, Professor
Mervi Niskanen and Professor Doctor Sascha Kraus, for their valuable comments and
remarks. These comments helped me to improve the quality of my work in the final stage.
I also owe a debt of gratitude to all my colleagues who make work at the University more
enjoyable. For example, J yri Kinnunen, Satu Pätäri, Sanna Hämäläinen, Maija Hujala, Eero
Pätäri, Pasi Tuominen, Anssi Tarkiainen, Heli Arminen, and Jorma Sappinen deserve to be
mentioned as they are great coffee/lunch/discussion companions. Also, Terttu Hynynen,
Mervi Lensu, and Toni Haikala deserve my thanks for all their help with the day-to-day
practical issues during the five years I have been working at the University.
I am grateful for the financial support received from the Foundation for Economic Education
(Liikesivistysrahasto) and the Support Foundation of Lappeenranta University of Technology
(Lappeenrannan teknillisen yliopiston tukisäätiö/ Lauri ja Lahja Hotisen rahasto).
I would like also to thank Eeva Häyrinen for her contribution in the practical issues of this
dissertation process and Virginia Mattila for her help with revising the language of this
dissertation.
I express my warmest thanks to my parents, sister and friends. Finally, last but not definitely
least, I owe my most profound gratitude to my beloved wife Salla and to my beautiful
daughters Aino and Enni. You have always taken my thoughts away from the work-related
issues the moment I came home after a day at the office. It has been the best support for this
project, to show what is really important in life.
Lappeenranta, September 2013
J uha Soininen
TABLE OF CONTENTS
ABSTRACT
ACKNOWLEDGEMENTS
1. INTRODUCTION ...................................................................................................... 13
1.1 RESEARCH BACKGROUND ......................................................................................... 13
1.2 RESEARCH GAPS AND OBJECTIVES ............................................................................ 14
1.3 DEFINITIONS AND SCOPE .......................................................................................... 19
1.4 OUTLINE OF THE DISSERTATION ............................................................................... 21
2. THEORETICAL FRAMEWORK ............................................................................. 24
2.1 THE CONCEPT OF ENTREPRENEURIAL ORIENTATION ................................................ 24
2.2 THE EO-PERFORMANCE RELATIONSHIP ................................................................... 28
2.2.1 PERFORMANCE MEASURES IN EO LITERATURE ........................................... 28
2.2.2 EMPIRICAL FINDINGS ON EO-PERFORMANCE RELATIONSHIP .................. 30
2.3 DRIVERS OF ENTREPRENEURIAL ORIENTATION ........................................................ 33
2.3.1 ANTECEDENTS OF ENTREPRENEURIAL ORIENTATION ................................ 34
2.3.2 INDIVIDUAL LEVEL ENTREPRENEURSHIP ..................................................... 37
2.3.3 ORGANIZATIONAL CHARACTERISTICS ........................................................... 40
2.3.4 WORK VALUES ................................................................................................... 41
3. RESEARCH DESIGN AND METHODS .................................................................. 44
3.1 OVERVIEW OF THE RESEARCH DESIGN ..................................................................... 44
3.2 DATA COLLECTION AND METHODS OF ANALYSIS ...................................................... 45
3.3 MEASURES USED IN THE DISSERTATION .................................................................... 47
3.4 ISSUES RELATED TO SURVEYS ................................................................................... 51
4. SUMMARY OF THE ARTICLES AND RESULTS ................................................. 53
4.1 ENTREPRENEURIAL ORIENTATION: GROWTH AND PROFITABILITY OF FINNISH
SMALL AND MEDIUM-SIZED ENTERPRISES ..................................................................... 53
4.1.1 OVERALL OBJECTIVE ........................................................................................ 53
4.1.2 MAIN FINDINGS ................................................................................................. 54
4.2 THE IMPACT OF GLOBAL ECONOMIC CRISIS ON SMES – DOES ENTREPRENEURIAL
ORIENTATION MATTER? .................................................................................................. 54
4.2.1 OVERALL OBJECTIVE ........................................................................................ 54
4.2.2 MAIN FINDINGS ................................................................................................. 55
4.3 DOES INTERNATIONAL ENTREPRENEURSHIP MAKE FIRMS MORE VULNERABLE? – THE
IMPACT OF GLOBAL ECONOMIC CRISIS ON FINNISH SMES .............................................. 55
4.3.1 OVERALL OBJECTIVE ........................................................................................ 55
4.3.2 MAIN FINDINGS ................................................................................................. 56
4.4 ENTREPRENEURIAL ORIENTATION IN SMALL FIRMS – A VALUES-ATTITUDES-
BEHAVIOR APPROACH ...................................................................................................... 56
4.4.1 OVERALL OBJECTIVE ........................................................................................ 56
4.4.2 MAIN FINDINGS ................................................................................................. 56
4.5 WHAT DRIVES EO IN SMALL FIRMS? ROLES OF THE OWNER-MANAGER AND
FINANCIAL CONDITIONS ................................................................................................... 57
4.5.1 OVERALL OBJECTIVE ........................................................................................ 57
4.5.2 MAIN FINDINGS ................................................................................................. 57
4.6 SUMMARY OF OVERALL RESULTS ............................................................................. 58
5. CONCLUSIONS ......................................................................................................... 62
5.1 ANSWERING THE RESEARCH QUESTIONS .................................................................. 62
5.2 CONTRIBUTIONS ....................................................................................................... 66
5.3 MANAGERIAL, THEORETICAL, AND POLICY IMPLICATIONS ...................................... 67
5.4 LIMITATIONS AND SUGGESTIONS FOR FUTURE RESEARCH ........................................ 69
REFERENCES ................................................................................................................... 71
PART II: ARTICLES
1. Soininen, J uha, Martikainen, Minna, Puumalainen, Kaisu and Kyläheiko, Kalevi
(2012). Entrepreneurial Orientation: Growth and Profitability of Finnish
Small and Medium-Sized Enterprises. International Journal of Production
Economics, 140 (2), 614-621.
2. Soininen, J uha, Puumalainen, Kaisu, Sjögrén, Helena, Syrjä, Pasi (2012). The impact
of global economic crisis on SMEs – does entrepreneurial orientation matter?
Management Research Review, 35 (10), 927-944.
3. Soininen, J uha, Saarenketo, Sami, Puumalainen, Kaisu and Sjögrén, Helena (2011).
Does International Entrepreneurship Make Firms more Vulnerable? – The
Impact of Global Economic Crisis on Finnish SMEs. Presented in the proceedings
of the 14th McGill International Entrepreneurship Conference, University of Southern
Denmark, Odense, Denmark, September 16–18, 2011.
4. Soininen, J uha, Puumalainen, Kaisu, Sjögrén, Helena, Syrjä, Pasi and Durst, Susanne
(2013) Entrepreneurial Orientation in small firms: a values-attitudes-behavior
approach. International Journal of Entrepreneurial Behaviour & Research, 19 (6),
(forthcoming).
5. Soininen, J uha, Puumalainen, Kaisu, Sjögrén, Helena and Syrjä, Pasi (2012)
What drives EO in small firms? Roles of the owner-manager and financial
conditions. Presented in the proceedings of the 17th Nordic Conference on Small
Business Research, Helsinki, Finland, May 23–25, 2012
The contribution of Juha Soininen to the articles:
1. Wrote the most of the paper and had a central role in modifying the paper on the basis
of the reviewers’ comments
2. Wrote the most of the paper. Had a central role in modifying the paper on the basis of
the reviewers’ comments. Conclusions on the findings was a joint effort.
3. Wrote the most of the paper. Finalizing the paper was a joint effort with the co-author.
4. Wrote some parts for the first draft. Wrote most of the second heavily revised version
of the paper. Conducted the data analysis and played a central role in modifying the
paper on the basis of the reviewers’ comments.
5. Wrote the most of the paper. Conducted the data analysis. Finalizing the paper was a
joint effort with the co-authors.
PART I: OVERVIEW OF THE DISSERTATION
13
1. INTRODUCTION
1.1 Research background
The economic importance of small and medium-sized enterprises (SMEs) and
entrepreneurship has increased significantly in recent decades, since large companies are
increasingly concentrating on core competences and implementing mass lay-offs (van Stel et
al., 2005). Moreover, many scholars have recognized and demonstrated the crucial role
played by SMEs as a driving engine of growth, job creation, competitiveness in global
markets and the general health and welfare of economies both nationally and internationally.
For example around 85 per cent of new jobs in the U.S. are created by small business
(Audretsch, 2002; Lappalainen and Niskanen, 2009; Lappalainen and Niskanen 2012). As the
entrepreneurial activity and SMEs are seen to be increasingly indispensable to economic
progress, it is important to study how small firms and entrepreneurs can enhance their
performance and ensure their survival in the turbulent economic environment. Coping with
such harsh conditions may require firms to demonstrate special capabilities, internal resources
or behaviors such as innovativeness, flexibility or adaptability. In that sense the strategic
management and entrepreneurship literature may offer useful concepts to utilize when looking
for possible remedies or enhancements for firm’s chances of performing during economic
crises. Hakala (2011) pointed out that several distinct strategic orientations of businesses,
such as market, customer, learning, technology, and entrepreneurial orientations have gained
considerable attention from both managers and management scholars. Several studies have
provided evidence that one of these orientations alone (Kohli and J aworski, 1990; Calantone
et al., 2002; Wiklund and Shepherd, 2005) and also the interaction between the orientations or
different combinations of the orientations may provide a source of high performance or
competitive advantage for firms (Hult et al., 2004). As these strategic orientations are
significant drivers of a firm’s performance, we focus here on one of them, more specifically
on entrepreneurial orientation.
In recent decades the concept of entrepreneurial orientation (EO) has attracted considerable
attention in the field of entrepreneurship research. By EO we generally refer to a firm’s
propensity to be innovative, to be proactive and to take risks (Andersén, 2010). The EO
14
concept is widely used in the field of entrepreneurship. For instance Wales et al. (2011)
pointed out that more than 150 studies of EO have been conducted, implying that the
conceptual meaning of EO is widely accepted and that it is widely considered as relevant
concept and a cornerstone in the literature on firm-level entrepreneurship. Most EO studies
(e.g. Zahra, 1986; Covin and Slevin, 1990; Zahra and Covin, 1995; Wiklund, 1999; Wiklund
and Shepherd, 2005; Kraus et al., 2012) have focused on the EO-performance relationship
and have found that adopting EO associated entrepreneurial behaviors will help firms to
create or sustain a high level of performance (Covin and Slevin, 1991; Rauch et al., 2009).
As the EO is a much studied topic and a great deal is known about it, when scholars like
Wiklund and Shepherd (2011, p.925) ask “are we at a point of saturation with little more to
learn, or can future investigation of EO still make contributions to entrepreneurship
literature?” it is clear that new contexts or approaches to the theme are welcome. Miller
(2011) points out that the performance implications of EO vary across contexts. The latest
global economic crisis therefore offers a very fruitful context for studying the effects of EO
on the performance of small and medium-sized enterprises. Moreover, Wiklund and Shepherd
(2011) and Miller (2011) note that in future research on EO there is room for studies
scrutinizing the mechanisms underlying the antecedents of EO, or how different resources
may affect different aspects of EO.
1.2 Research gaps and objectives
Research on EO abounds, and the relationship between EO and firm performance has been
most intensively studied (some recent empirical studies include Harms et al., 2010; Grande et
al., 2011; Lechner and Gudmunddson, 2012; Eggers et al., 2013; Kraus, 2013; Messersmith
and Wales, 2013) Therefore, to be able to make a contribution to the literature one needs to
identify certain gaps in the literature. Through a comprehensive inspection of the literature, it
was possible to identify research gaps for this dissertation. Studies so far (Covin and Slevin,
1989; Zahra and Covin, 1995; Lumpkin and Dess, 2001) have noted that contextual
influences affect how successful EO is in performance. In business environments especially,
where rapid changes, hostility, uncertainty, and aggressive competition are present, a firm’s
entrepreneurial posture plays an important role as a performance enhancing factor. The most
15
recent global economic crisis offers an exceptional context in which to study the performance
implications of EO in small firms. During the period 2008-2009, the global economy faced its
most serious recession and financial crisis since the Great Depression of the 1930’s, and, as
consequences of the crisis, Europe and the USA faced the collapses, government bail-outs or
partial nationalizations of major financial institutions (Smallbone et al., 2012). The crisis also
affected the Finnish economy, since in the last quarter of 2008 the number of layoffs, order
cancellations and financial difficulties increased drastically, leading among other things to a
30 per cent increase in the number of bankruptcies among the Finnish SMEs. Figure 1 gives a
picture of the overall situation in the Finnish economy during a five-year period. It shows the
development of Finland’s GDP from 2006 to 2011, the most relevant time period for the
purposes of this dissertation. The annual growth in GDP started to slow down in the last
quarter of 2007. The growth turned negative in the third quarter of 2008 and stayed negative
until the first quarter of 2010. It is noteworthy that data collection was at the end of Q2 in
2009 (the arrow in the figure). The entrepreneurs’ opinions regarding their EO and how the
recession was affecting their firms, were therefore captured is a situation when the Finnish
economy overall was in recession as GDP has decreased for four consecutive quarters.
Figure 1. Annual Growth Percentage of Finland’s GDP (Statistics Finland, 2011)
Studies focusing on firms’ entrepreneurial activities and the performance implications in such
extreme environmental and market turbulence are surprisingly scarce. Kraus et al. (2011) and
Grewal and Tansuhaj (2001) are among the few studies where EO or strategic flexibility,
which closely resembles the proactiveness dimension of EO, are related to business
-12
-10
-8
-6
-4
-2
0
2
4
6
8
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2006 2007 2008 2009 2010 2011
16
performance under circumstances where firms were facing acute market uncertainty and
instability. Hence, there is indeed a gap in the literature that justifies the existence of this
dissertation.
Secondly, Vij and Bedi (2012) noted that there is no consensus among researchers on the
appropriate measures of business performance indicators. This has led to a situation where a
wide selection of performance measures i.e. objective and subjective measures have been
used. In this dissertation we use objective data which is widely accepted by researchers to be a
more appropriate measure than the subjective measures of performance, which are widely
used in the EO literature (Covin et al., 1994; Zahra and Neubaum, 1998; Lumpkin and Dess,
2001; Baker and Sinkula, 2009; Kraus et al., 2012; Messersmith and Wales, 2013) as
objective performance measures are very difficult to obtain (Vij and Bedi, 2012). The
objective financial statement based data enable us to avoid the disadvantages inherent in
subjective measures and to measure the multidimensional construct of performance from
many different angles, such as growth, profitability, and liquidity, efficiency, size and
leverage (Carton and Hofer, 2006). Hence, there is a minor gap in the literature related to the
type of data used to measure business performance and this dissertation can contribute to
bridging that gap.
Thirdly, although the literature on the determinants of entrepreneurship has flourished and
expanded in the past three decades, there is still room for contributions. A number of studies
(Reynolds et al., 1994; Blanchflower and Oswald, 1998; Cowling, 2000; Lin et al., 2000;
Davidsson, 2006; Grilo and Irigoyen, 2006; Grilo and Thurik, 2008) have either focused on
demographic determinants or macroeconomic determinants when explaining the level of
entrepreneurship. Moreover, the number of studies explaining EO is very limited (Salvato,
1994; Morris et al., 2007; J alali, 2012 Meynhardt and Diefenbach, 2012; Zahra, 2013) often
concentrating on the organizational, environmental or demographic (gender, age, level of
education) factors that foster entrepreneurial behaviors. Furthermore, in the literature there is
a clear need for empirical studies focusing on the personal characteristics of the entrepreneur
or top manager as the owner's personality, values and identities are recognized as important,
especially in the small firm context (Simsek et al., 2010; Miller, 2011; Miller and Le Breton-
Miller, 2011). To further emphasize the topicality of this dissertation, we can quote Pines et
al. (2012, pp. 96) when they argued that “in recent years research on entrepreneurial
17
personality has re-emerged as an important topic of investigation and leading
entrepreneurship scholars have noted that a psychological approach is necessary to
understand entrepreneurship”. Wiklund (1999) likewise argued that particularly when applied
to small firms, EO might be seen as a result of individual-level determinants rather than firm-
level outcomes. Therefore more research is needed focusing on the individual entrepreneur’s
personality in explaining EO and hence, thereby exposing a gap in the field of EO literature to
be addressed in this dissertation.
Given the research gaps identified and objectives set, the research questions of this study are
formulated as follows:
The main research question:
What are the main drivers and performance implications of EO for SMEs in time of
economic crisis?
For a more detailed understanding of the phenomenon of interest, the main research question
above is broken down into more detailed subquestions, which are the following:
Sub-question 1: What are the performance implications of EO and the role of EO in how
firms are treated by the crisis at operational level?
Three of the five articles are aimed to answer the sub-question above. More detailed
objectives of those three articles are the following:
Article 1: What are the implications of EO on the dynamics of profitability and growth?
Article 2: Can EO mitigate the negative effects of economic crisis on firms’ performance and
operations?
Article 3: How the dimensions of EO and the firm’s level of internationalization affect its
financial performance?
18
The articles above are related to the performance implications of EO and closely related to the
approaches in the traditional EO-performance literature. The following sub-question is
representing a novel approach to explain EO in response to the call for more psychology
oriented approaches to explaining entrepreneurship in general.
Sub-question 2: What are the main drivers of EO in SMEs?
Two of the five articles are intended to answer the sub-question above. The aims of these two
articles are the following:
Article 4: To ascertain the roles of entrepreneurs’ work values and goal related attitudes as
determinants of EO.
Article 5: To ascertain if entrepreneurs’ work values, prior experience and firms’ financial
attributes explain the level of EO?
Each of the five research articles is intended to answer one of these sub-questions,
culminating in a situation where comprehensive answers to the main research question can be
evinced.
The main objective of this dissertation is to try to fill the abovementioned gaps in the
literature. Figure 2 illustrates the general concepts covered in this dissertation with EO as the
focal theoretical concept in each of the research articles forming the second part of the
dissertation. The concepts in the rectangles are covered in one or more articles. The arrows in
the figure indicate the proposed relationship between the concepts empirically tested in the
research articles. SMEs during economic crisis is the context in which these relationships are
studied. To put it in other words, the first broad objective of this dissertation to examine the
implications for performance of EO during a time of extraordinary economic turbulence and
to test the role of EO in how firms are treated by the crisis at operational level. The second
broad objective of the dissertation is to extend the prevailing understanding of the
19
determinants of EO by exploring the relationship between owner's work related values,
demographic characteristics, firm’s financial resources and EO.
Figure 2. Conceptual framework of the dissertation
1.3 Definitions and scope
This section presents a brief definition of the key concepts in this dissertation. More detailed
discussion is provided in the following chapter. The main theme in this dissertation is EO in
Finnish small and medium-sized enterprises. EO is argued to be a multidimensional strategic
construct which has become a central concept in the domain of entrepreneurship, having
received a substantial amount of theoretical and empirical attention. In the literature EO is
often claimed to comprise three separate dimensions, namely innovativeness, risk-taking, and
proactiveness (Rauch et al., 2009).
The three core dimensions of EO were conceptualized by Miller (1983) and can be defined as
follows: Innovativeness is the inclination to commit to creativity and experimentation through
Consequences
of Economic
Crisis for
Firm
Entrepreneur’s
Demographic
Characteristics
Characters
Firm’s
Financial
Resource Base
Entrepreneurial
Orientation
Firm
Performance
Entrepreneur’s
Work Values
SMEs during Economic Crisis
20
the introduction of new products/services as well as technological leadership via R&D in new
processes. Risk-taking involves taking daring measures by venturing into the unknown,
borrowing heavily, and/or committing remarkable resources to ventures in uncertain
environments. Proactiveness is an opportunity-seeking, forward-looking perspective
characterized by the introduction of new products and services ahead of the competition and
acting in anticipation of future demand (Rauch et al., 2009).
The second theme in the dissertation is the entrepreneur’s work related values. According to
Gahan and Abeysekera (2009) work values are often considered as a key determinant of many
of an individual’s work-related attitudes and behaviors and therefore it is appropriate to focus
on them when examining the antecedents of EO.
Lyons et al. (2006, p. 607) defined work values as “generalized beliefs about the desirability
of certain attributes of work and work-related outcomes”. Gahan and Abeysekera (2009, p.
129) likewise stated that “the concept of work values captures the end states that individuals
desire and expect through working”. Like values in general work values are said to endure
and remain stable over time and to be ordered hierarchically in the individual’s mind
(Rokeach, 1973; Lyons et al., 2010). In spite of a plethora of different sets of values and
definitions, there appears to be consensus in making a distinction among values between
intrinsic, extrinsic and social or relational values (Gahan and Abeysekera, 2009). In addition
to these three types of work values Ros et al. (2009) suggested a fourth value, namely which
is related to status and recognitions.
The abovementioned values can be briefly defined as follows: intrinsic values refers to those
rewards which derive from the work itself, like challenge, variety, self-development, sense of
achievement or intellectual stimulation. Secondly, extrinsic values are related to those
material benefits yielded by the job such as pay, benefits, job security, and comfort. Status
values are related to prestige, influence and power, whereas social values are those pertaining
to affective relations with other people (Gahan and Abeysekera, 2009; Lyons et al., 2010).
The scope of the analysis in the dissertation is limited to small and medium-sized Finnish
private limited companies. The informants of the survey from whom data related to EO and
work values was gathered were the CEOs or owner-managers of the firms, meaning that in the
21
most cases the data reflects the values and entrepreneurial stance of the entrepreneur. In this
sense the level of analysis in this dissertation is both the individual level and the firm level as
the performance indicators are objective firm level figures based on the income statement and
balance sheet information.
1.4 Outline of the dissertation
This dissertation comprises two main parts Part I and Part II. Part I, an introductory part,
includes five chapters. The first chapter above described the rationale, provided an overview
of the research on EO accomplished so far, and pointed out the research gaps the dissertation
at hand proposes to address. It also set out the objectives, defined the key concepts and
presented an outline of the dissertation. Chapter 2 covers the relevant literature related to the
concepts used in the articles. Chapter 3 gives a brief introduction to the research design of the
dissertation, to the data and to the research methods used. Chapter 4 introduces the articles,
describing the objectives and main findings of each. It also presents answers to the research
questions. Finally, Chapter 5 presents the theoretical contributions of the dissertation and
makes suggestions for further research. Part II of the dissertation consists of five research
articles addressing the two sub-research questions. Figure 3 illustrates the outline of the
dissertation.
22
Figure 3. Outline of the dissertation
ARTICLE 1:
Entrepreneurial orientation: growth
and profitability of Finnish small and
medium-sized enterprises.
ARTICLE 2:
The impact of global economic crisis on
SMEs – does entrepreneurial
orientation matter?
ARTICLE 3:
Does international entrepreneurship
make firms more vulnerable? – the
impact of global economic crisis on
Finnish SMEs
ARTICLE 4:
Entrepreneurial orientation in small
firms – a values-attitudes-behavior
approach.
PART I: INTRODUCTION
PART II: ARTICLES
Sub-question 2:
What are the main drivers of EO
in SMEs?
Sub-question 1:
What are the performance
implications of EO and the role of
EO in how firms are treated by
the crisis at operational level?
Main research question: What
are the main drivers and
performance implications of EO
for SMEs in time of economic
crisis?
ARTICLE 5:
What drives EO in small firms? Roles
of the owner-manager and financial
conditions.
23
The first article takes a rather conventional approach to the topic offering a general
understanding of the relationship between EO and firm performance among Finnish SMEs.
An addition to this conventional approach a unique attempt was made to shed light on the
relationship between the strategic construct and actual riskiness of the firm based on a risk
measure derived from balance sheet figures. The second article takes a slightly more
ambitious approach as here the EO is broken down into more detailed dimensions and, in
addition to the traditional performance implications, the focus is on the operational effects of
the economic crisis perceived by the managers. In the third article the focus is on how EO
affects financial performance at different stages of the economic crisis and the role of the
firm's level of internationalization. Articles four and five take a different approach from the
three first papers. In these two papers EO is treated as a dependent variable and the purpose is
to examine its determinants. The work related values of the entrepreneur are in a key position
in these two papers. Paper four especially takes a rather ambitious and novel approach to the
issue. Altogether these five research articles can be seen to give a fairly comprehensive
picture of EO in SMEs.
24
2. THEORETICAL FRAMEWORK
In this chapter the key concepts of this dissertation are presented and the relevant literature
related to them is also covered in relevant depth to highlight the acceptance and distribution of
these concepts. First EO is discussed to give the reader an adequate understanding of the
phenomenon and its implications mainly for firm performance. Thereafter the focus shifts to
the literature related to the antecedents of entrepreneurship. Studies examining the possible
determinants of entrepreneurship and entrepreneurial behavior are covered to reveal the logic
and rationale behind the approach in this part of the dissertation.
2.1 The concept of entrepreneurial orientation
The phenomenon of EO has become a central focus of the entrepreneurship literature and the
subject of more than three decades of research (Covin and Wales, 2012). EO is considered to
be a higher order construct with underlying dimensions (George and Marino, 2011) and
Miller (1983) conceptualized the three focal dimensions of EO as innovativeness, risk-taking
and proactiveness and these three dimensions have since been used consistently in the
literature (Kemelgor, 2002; Dimitratos et al., 2004). Lumpkin and Dess (1996) described
innovativeness as follows: Innovativeness reflects a firm’s tendency to engage in and support
new ideas, novelty, experimentation, and creative processes that may result in new products,
services, or technological processes. Innovativeness represents a basic willingness to depart
from existing technologies or practices and venture beyond the current state of the art. They
argued that innovativeness is a key component of EO because it reflects important means by
which firms pursue new opportunities. Strategic risk-taking means actions such as venturing
into the unknown, heavy borrowing, and/or committing large portions of corporate assets in
uncertain environments (Baird and Thomas, 1985). In the same manner, Lumpkin and Dess
(1996) argued that entrepreneurially oriented firms are often characterized by risk-taking
behavior, such as incurring heavy debts or making significant resource commitments, in the
interests of obtaining high returns by seizing opportunities in the marketplace. Proactiveness
was described by Miller (1983) as an opportunity-seeking, forward-looking perspective
characterized by the introduction of new services and products ahead of the competition and
acting in anticipation of future demand.
25
In addition to these three much used dimensions Lumpkin and Dess (1996) argued that
dimensions such as competitive aggressiveness and autonomy should also be considered as
essential components of EO. These two additional dimensions were defined by Lumpkin and
Dess (2001) as follows: Competitive aggressiveness is said to reflect the intensity of a firm’s
effort to outperform industry rivals, characterized by a strong offensive posture and a forceful
response to competitor’s actions. Autonomy is independent action by an individual or team
aimed at realizing a business concept or vision and carrying it through to completion. The
number of studies in the EO literature using all these five dimensions is very limited (e.g.
George et al., 2001) when compared to the number of studies using the three dimensions of
Covin and Slevin (1989). It is obvious that the dimension of autonomy is related to larger
corporations and therefore, in the context of small firms especially, it can be reasonably
omitted from the scale. The same exclusion procedure may also be relevant for competitive
aggressiveness, as small firms may lack the competitive power needed to be able to behave as
the dimension expects.
George and Marino (2011) stated that in spite of the wide acceptance of the construct a
number of issues regarding dimensionality, the nature of the construct, interdependence of the
dimensions etc. are worth mention. First, regarding the dimensionality issue Rauch et al.
(2009) noted that the focal dimensions of EO are usually highly inter-correlated with each
other, which leads to combining these dimensions into one single factor. In the EO literature
there is no solid consensus on the dimensionality of the EO construct. On the one hand,
scholars such as Covin and Slevin (1989) have argued that the EO construct is best viewed as
a unidimensional concept and on the other hand Lumpkin and Dess (2001), for example, have
suggested that the dimensions of EO may relate differently to firm performance. Dess et al.
(2011) later mentioned that, if a highly inter-correlated EO scale (for instance the nine-item
scale by Covin and Slevin (1989)) is split into separate dimensions, this kind of analysis
would not adequately represent the construct of EO. On the other hand they still suggest
running this kind of “supplementary analysis” to obtain additional insights.
Similarly, an issue related to the use of different numbers of dimensions is a topic worth
discussing as there are two main schools of thought arguing how best to capture the EO,
26
Lumpkin’s and Dess’s (1996) five dimensions or Covin’s and Slevin’s (1989) three
dimensions. Besides these two main contenders George and Marino (2011) noted that some
scholars (e.g. Mertz and Sauber, 1995) have suggested that the right number of dimensions is
even fewer than three. The comprehensive meta-analysis by Rauch et al. (2009) and also a
work by George and Marino (2011) present an extensive listing of scholarly studies and the
EO scales used in them and whether dimensions have been treated separately or not. The use
of different items, different numbers of dimensions and different combinations of these has
given rise to concern relating to construct validity, as Dess et al. (2011) noted a situation with
too much variation in the definition and measurement of the key construct will cause
difficulties when building on earlier findings.
Secondly, there is debate on the nature of the construct of EO and the relationship between
EO and its dimensions a by definition EO is a higher-order construct implying that EO
consists of structural relationships with other structures. A problem arises from the fact that in
the case of the EO the definitions used in the literature have not been consistent in the
relations between the dimensions and the superordinate construct, which has led to
interpretations and disputes (George and Marino, 2011). Recently fundamental discussion has
emerged in the literature on whether EO is a reflective or formative construct (Covin and
Wales, 2012).
Figure 4 illustrates the difference between reflective (causality from the construct to what it
measures) and formative (causality from the measures to the construct) constructs. If EO is
considered a reflective construct it implies that an entrepreneurially oriented firm will exhibit
characteristics of proactiveness, innovativeness and risk-taking and an increase in EO would
be anticipated to increase the levels of each of these dimensions (George and Marino, 2011).
On the other hand, in the case of the formative construct the process flows the opposite way,
implying that EO is composited of its dimensions. That is, EO is formed by aggregations of
the dimensions. George and Marino (2011) argued EO to be reflective construct, reasoning
that empirical studies have consistently shown dimensions to covary implying that a change
in EO causes changes in all its dimensions. Therefore they suggested that the dimensions are
only reflections of the larger, unobservable construct representing a firm’s strategic posture.
27
On the other hand, approaches to EO used by other scholars, for instance Lumpkin and Dess
(2001), imply that the EO would be formative construct created by its dimensions.
Figure 4. Reflective vs. formative construct
The lack of consensus on the directions of causality has many implications for several issues.
For example, if the objective is to explain the level of EO, EO can be explained by some
antecedents, or is the right way to seek antecedents for innovativeness, proactiveness and risk-
taking? Similarly, if the purpose is to enhance the level of a firm’s EO is the right approach to
be more innovative, proactive and risk-taking or is there something else that has to be done to
be more entrepreneurial?
EO
EO
Innovativeness
Proactiveness
Innovativeness
Risk-taking Proactiveness
Risk-taking
Reflective construct
Formative construct
28
2.2 The EO-performance relationship
The modern business environment is considered to be highly dynamic; the life cycles of
products and business models are shortened, the future profit streams from existing operations
are uncertain, and businesses need to constantly monitor the environment for new
opportunities. In such circumstances, adopting an entrepreneurially oriented posture may be
beneficial for firms (Rauch et al., 2009). The supportive impact of EO on performance is
related to the first-mover advantages and the tendency to take advantage of emerging
opportunities (Wiklund, 1999). Zahra and Covin (1995) argued that firms with EO are able to
“skim” the markets ahead of their competitors by targeting premium market segments and
charging high prices. Wiklund (1999) pointed out that entrepreneurially oriented firms
monitor market changes and respond rapidly, thus seizing emerging opportunities. Innovation
keeps them ahead of their competitors, gaining a competitive advantage that leads to
improved financial results. Proactiveness gives firms the capability to launch new products or
services on the market before their competitors, which also gives them a source of
competitive advantage. Moreover, Wiklund (1999) argued that it is reasonable to assume that
EO is even more beneficial in the context of small firms as the smallness per se may be
conducive to flexibility and innovation.
2.2.1 Performance measures in EO literature
Financial performance is claimed to be a multidimensional construct, for instance Carton and
Hofer (2006) described financial performance to be a combination of profitability, growth,
efficiency, liquidity, size, and leverage, which are measured with relevant measures. The
potential measures to assess the above-mentioned dimensions of performance are for instance:
return on assets, sales growth, sales per employee, current ratio, number of employees, and
debt to equity.
The concept of financial performance itself is a complex construct, and the EO literature
offers no solid consensus on the appropriate measures of small firm performance (Wiklund,
1999). Hence the prior literature shows that the variety of measures that have been used to
assess the firm performance has been rather diverse. For instance, Kraus et al. (2012) noted
29
that performance is regularly measured in one or a combination of the following means:
perceived financial, perceived non-financial and archival financial.
Several studies (Dess et al., 1997; Wiklund, 1999; Lumpkin and Dess, 2001; Wiklund and
Shepherd, 2003; Madsen, 2007; Runyan et al., 2008; Kraus et al., 2012; Lechner and
Gudmundsson, 2012; Messersmith and Wales, 2013) have used perceived performance
indicators to assess firm performance. The items that were used to form the performance
indicator typically based on manager’s subjective views about firm’s profitability, growth,
market share, in relative to its most important competitors. The overall performance measure
is typically formed by merging several items measuring the different aspects of performance
into one performance score or index (e.g. Lechner and Gudmundsson, 2012). The reasons for
the use of perceived performance measures are commonly the lack of publicly available
archival performance figures on SMEs (Kraus et al., 2012) or the fear of losing respondents if
such accurate performance figures are requested in questionnaires as privately owned firms
are often reluctant to disclose such financial information (Messersmith and Wales, 2013).
This kind of subjective performance data may be prone to biases or inaccuracy as it relies on
key informant’s, typically CEO’s, ability and willingness to report and rate firm’s objective
performance accurately with subjective proxies (Kraus et al., 2012). Many studies on the
other hand have shown that subjective and objective performance measures are typically
strongly positively correlated (Wall et al., 2004; J antunen et al., 2005; Stam and Elfring;
2008; Messersmith and Wales, 2013) and hence support the validity of the subjective
performance measures.
The use of archival financial performance measures is significantly less frequent than the use
of the above-mentioned subjective performance measures (e.g. Zahra and Covin, 1995; Zahra
and Garvis, 2000; Covin et al., 2006; Stam and Elfring, 2008; Zahra, 2008; Harms et al.,
2010; Cassia and Minola, 2012). Similarly, Rauch et al. (2009) reviewed 52 EO studies and
found that performance was measured by archival financial measures in only seven studies.
Also, among those studies using secondary data there is variation in how performance is
defined and measured. Some scholars like Zahra and Covin (1995) combined measures of
return on assets (ROA), return on sales (ROS) and growth into a single performance indicator,
as they see performance as a multidimensional concept. Whereas some scholars (Moreno and
30
Casillas, 2008) argued that this kind of an approach may not be the most suitable because
growth dimension and profitability dimension are sometimes contradictory and therefore
should not be combined into one single indicator. Wiklund (1999) also pointed out that there
is a common sentiment that growth is a more accurate performance indicator than accounting
measures and hence superior to indicators of financial performance. For instance, Covin et al.
(2006), Stam and Elfring (2008) and Moreno and Casillas (2008) used sales growth as
performance indicator in their studies. Profitability measured by return on assets (ROA), has
been used as an indicator for performance in studies by Zahra and Garvis (2000) and Zahra
(2008).
Non-financial measures, such as satisfaction and global success ratings made by managers,
can also be used in entrepreneurship research to assess the perceptions of the SME’s
management towards the performance of the firm because of a strong correlation between
financial and non-financial measures (Covin, 1991). However, this kind of an approach has
been used rather infrequently in the literature (Rauch et al., 2009). Even apart from the
traditional performance measures some EO studies have, for instance, used new product
development, product innovativeness, and number of patents as dependent variables
(Kemelgor, 2002; Avlonitis and Salavou, 2007; Friskhammar and Hörte, 2007).
2.2.2 Empirical findings on EO-performance relationship
As can be seen from the preceding section, in the EO literature the concept of performance is
very complex as performance measures used in studies ranges in a very wide variety of
measures. Therefore when the EO studies refer to “performance” at a more detailed level this
may actually be profitability or growth or a combination of these. Moreno and Casillas (2008)
pointed out that the quite extensive body of literature on the relationship between EO and firm
performance is dominated by two types of studies. Firstly, there are those presenting general
models describing the characteristics of the said relationship, identifying the moderating and
mediating variables and striving to establish wide-ranging propositions (Covin and Slevin,
1991; Marino et al., 2002; Stam and Elfring, 2008). Secondly, as Moreno and Casillas (2008)
observed, a wide range of studies have attempted to empirically verify partial models of said
relation. This field of research contains, in an isolated and independent manner, some of
31
moderating variables, those related either to environment (Tan and Tan, 2005) or to the firm’s
internal dimensions (Wang, 2008).
Several empirical studies have found that firms with high EO perform better than firms with
lower levels of EO, for instance Keh et al. (2007) pointed out that EO has a crucial role in
improving firm’s perceived performance measured by benchmarking the respondent’s own
business performance against those of competitors based on profitability, sales growth,
market share, and overall performance. Correspondingly, Wiklund and Shepherd (2003)
likewise showed that there is a strong correlation (0.34) between the level of EO and
performance. Here the performance measure was a subjective measure composed of ten
different dimensions of performance: sales growth, revenue growth, growth in the number of
employees, net profit margin, product/service innovation, process innovation, adoption of new
technology, product/service quality, product/service variety, and customer satisfaction. The
relationship between EO and performance has also been tested in specific industries. For
instance, Kraus (2013) showed that within service firms EO is a highly significant predictor
of company performance. As most of the earlier EO studies utilize cross-sectional data there
are also some studies that focus on the relationship in a longitudinal framework. For instance,
Wiklund (1999) pointed out that striving to increase EO may be worthwhile for small firms
since a positive relationship was identified between EO and firm performance and
furthermore the relationship was intensified over time.
As a notable amount of studies have shown that there is a direct relationship between EO and
performance, there is also a number of studies that have shown that EO has no direct effect on
performance. Zahra (2008) showed that EO had no direct effect on performance, but the
interaction between market orientation and EO influenced performance positively. Moreover,
this relationship was dependent on industries as the strength of the interaction effect was
stronger in high-tech industries. The nature of the business environment can also play a role in
the relationship between EO and performance. Kraus et al. (2012) is one of the first studies
investigating the effects of EO on the performance of SMEs during the current global
economic crisis. They showed that only being proactive made a significant direct positive
contribution to performance. On the other hand, the interaction term of innovativeness with
market turbulence was positively related to business performance, whereas the relationship
32
between the interaction term of risk-taking with market turbulence and business performance
was negative. These findings led to the conclusion that under conditions of high uncertainty
or market turbulence, investments in proactiveness and innovativeness and careful
management of the firm’s risk-taking activities would appear wise. Furthermore, Messersmith
and Wales (2013) showed that there was no significant direct main effect of EO on young
firms’ sales growth, but there was an interaction effect between human resource management
and EO on firm performance. This finding indicated that EO has a more positive relationship
with sales growth among firms with higher scores of high-performance work systems
(Messersmith and Wales, 2013).
There is also empirical evidence indicating that the relationship between EO and performance
is not necessarily linear. For instance, even if entrepreneurship is one of the key elements in
organizational success, Bhuian et al. (2005) showed that the relationship was inverted U
shaped, implying that targeting higher and higher levels of EO is not the optimal goal in
certain specific market and structural conditions. Tang et al. (2008) likewise reported a
curvilinear relationship between EO and firm performance. Zahra and Garvis (2000) also
noted that although firms that aggressively pursued EO in hostile international environments
had higher levels of profitability (ROA), as the level of environmental hostility increased, the
increase in the firm’s entrepreneurial activities tended to lead to a situation which ROA fell.
Hence, Zahra and Garvis (2000) concluded that also under excessively hostile environment
the relationship between EO and profitability is not linear. These findings confirm that the
pursuit of the highest possible EO may under some conditions lead to undesired end results.
Growth is one very commonly used tool for measuring the success and performance of firms
(Lappalainen and Niskanen, 2009) and it is also argued to be the dominant goal of the
entrepreneurial organization (Mintzberg, 1973). Lumpkin and Dess (1996) later noted that EO
is, essentially, a growth orientation. Stewart and Roth (2001) likewise referred to
entrepreneurial small business owners as growth oriented. However, despite these widely
acknowledged facts, the relationship between EO and the growth dimension of firm
performance has been studied remarkably little. Covin et al. (2006) argued that EO
effectiveness is appropriately measured using criteria that reflect a firm’s success at
translating entrepreneurial opportunities into growth trajectories. In their study they used sales
33
growth rate as a growth proxy when exploring the relation between EO and growth. Their
study showed that there is a positive relationship between EO and sales growth rate.
Similarly, the findings of Harms et al. (2010) and Stam and Elfring (2008) emphasized the
positive relationship between EO and sales growth and the findings of Eggers et al. (2013)
evidenced the positive influence of EO on revenue growth and employment growth. Li et al.
(2009) showed that when the growth was measured with subjective items there was also a
strong positive correlation between firm growth and the components of EO. Nevertheless, the
findings among studies are not consistent on the positive impact of EO on growth. For
instance, Moreno and Casillas (2008) and Zahra and Garvis (2000) did not find a direct
relationship between EO and firm growth to be significant. However, the results of Moreno
and Casillas (2008) suggested that there is an indirect relationship via the mediating and
moderating role of other variables such as strategy, environment, or resources of the firm.
According to Moreno and Casillas (2008) these results underline the complexity of the
relationship between EO and firm growth.
2.3 Drivers of entrepreneurial orientation
There is general agreement on the important role of entrepreneurship and it is often argued to
be one of the key elements of economic growth, employment generation and productivity
improvements (Grillo and Irigoyen, 2006; Liñán et al., 2011). Given the important role of
entrepreneurship, investigating its determinants has become a key research topic among many
scholars (Masuda, 2006; Grilo and Thurik, 2008; Goethner et al., 2012). Due to the
multidimensional nature of entrepreneurship, a variety of approaches have been used to shed
light on it. Freytag and Thurik (2007) state that the approaches used to explain the
phenomenon of entrepreneurship have been built on many different disciplines such as
economics, sociology, and psychology. Hence many different perspectives, approaches, and
tools are needed to better understand the relevant factors enhancing entrepreneurial activity at
all levels of observation where the phenomenon is present, such as individuals, firms, regions
or industries and even nations (Freytag and Thurik, 2007).
34
2.3.1 Antecedents of entrepreneurial orientation
As mentioned earlier, the amount of EO literature using the construct as a dependent variable
instead of an independent variable is quite limited. After an extensive search in ABI/INFORM
Global and EBSCO -Academic Search Elite databases using the key words “entrepreneurial
orientation” and “antecedent” or “determinant” or “predictor” for studies directly stating that
the aim (or one of them) was to explain EO, it was possible to find a handful of empirical
scholarly articles. Table 1 presents the publications, the variables used in explaining EO, the
context of the study and the main factors found to significantly affect the level of EO. Studies
focusing only on explaining EO and not treating it as a mediating variable are marked with an
asterisk in Table 1 the total number of such studies is nine.
The years of publications alone suggest that the theme is gaining in popularity, as ten out 15
studies were published in 2010 or later. On the other hand, the increase in the number of
studies could also indicate the previously mentioned possible saturation of the field of
traditional EO-performance studies, forcing authors to take novel approaches in the EO
framework.
Scrutiny of the explanatory variables used in earlier studies revealed that the variables can be
roughly divided into four broad categories: i.e. demographic, organizational, environmental,
and psychological. The context of the studies is mainly traditional SMEs, but three of the
studies (Morris et al., 2007; Wood et al., 2008; Meynhardt and Diefenbach, 2012) focus on
EO in rather uncommon contexts such as non-profit organizations, Air Force organizations
and one particular governmental agency.
35
Table 1. Summary of studies treating EO as dependent variable
Publication Explanatory variables Context Main findings: factors
found to explain EO
Entrialgo et
al. (2001)*
-Organizational context of the
firm
- Spanish SMEs - Resources
- Competitive strategy
Salvato
(2004)*
- Individual CEO characteristic
- Family firm issues
- Ownership structure
- Organizational characteristics
- Swedish family
SMEs
- CEO leadership
experience
- Ownership structure
- Value based
compensation
Sciascia et
al.(2006)*
- Environment-related factors
- Organization-related factors
- Individual-related factors
- Market orientation
- Resources
- Swedish SMEs - CEO experience
(negative effect)
- CEO education
- Organizational
informalization
- Value-based
compensation
- Environmental
dynamism and
heterogeneity
- Market orientation
- Resources
Morris et al.
(2007)
- Organizational structure
- Leadership style
- Organizational control
systems
- Environmental turbulence
- Non-profit
organizations
- Transformational and
transactional leadership
- Discretionary
control
- Board structure
Wood et al.
(2008)
- Appropriate use of rewards
- Management support
- Resource availability
- Supportive organizational
structure
- Risk-taking and failure
tolerance
- Air Force
Organizations
in US
- Appropriate use of
rewards
- Management support
- Supportive
organizational structure
- Risk-taking and failure
tolerance
Okhomina
(2010)*
- Need for achievement
- Internal locus of control
- Tolerance for ambiguity
- Supportive environment
- Used auto
dealers in the U.
S.
- Need for achievement
- Internal locus of control
- Tolerance for
ambiguity
- Supportive
environment
Peters et al.
(2010)*
- Employee orientation
- Brand orientation
- Tyrolean hotel
industry
- Employee orientation
- Brand orientation
Altinay and
Wang (2011)*
- Socio-cultural characteristics - Small firms in
London
- Educational attainment
of entrepreneur
- Previous experience of
the owner
Yaghoubi and
Naroei
(2011)*
- Emotional intelligence
- Organizational intelligence
- Industry (not
reported in
more details)
- Emotional intelligence
- Organizational
intelligence
36
Table 1. Continued
Ullah et al.
(2011)*
- Birth order
- Family occupation
- Motivational factors
- Pakistani SMEs - Being the first child,
especially a son
- Having an entrepreneur
in family
- Motivations related to
the exploitation of an
economic opportunity
Qureshi and
Kratzer (2011)
- Environmental turbulence - Small
technology-
based firms in
Germany
- Environmental
turbulence
Zainol and
Ayadurai
(2011)
- Personality traits - Malay family
firms in
Malaysia
- None
J alali (2012) - Environmental dynamics
- Environmental hostility
- Environmental uncertainty
- Iranian SMEs
which target
Eastern
European
countries
- Environmental
dynamics
- Environmental hostility
- Environmental
uncertainty
Meynhardt
and
Diefenbach
(2012)*
- Management support
- Work discretion
- Rewards
- Resource availability
- Germany’s
Federal Labor
Agency
- Influence of
management support
- Work discretion
- Position/ departmental
tenure
Eggers et al.
(2013)
- Financial resources
- Technological changes
- Austrian SMEs - Availability of
financial resources
- Technological changes
The main findings of the studies indicated that the factors explaining EO can indeed be
divided into the abovementioned categories. Demographic variables such as the experience or
education of the CEO (Salvato, 2004; Sciascia et al., 2006; Altinay and Wang, 2011), family
related factors (Ullah et al., 2011) were found to have a positive effect on the level of EO. At
the organizational level factors related to the structure of the organization, management
support, resources, appropriate use of rewards or leadership styles (Entrialgo et al., 2001;
Sciascia et al., 2006; Morris et al., 2007; Wood et al., 2008; Meynhardt and Diefenbach,
2012) were found to have a positive effect on EO. Studies examining the effects of the
environment (Sciascia et al., 2006; Qureshi and Kratzer, 2011; J alali, 2012; Eggers et al., 2013)
showed consistently that the turbulent and dynamic environments tend to affect the level EO.
This confirms the important role of the environmental context in EO research in a similar
manner than e.g. Covin and Slevin (1991).
37
An interesting approach potentially especially relevant in the context of small firms where the
entrepreneur is in a significant role is taken in the studies by Okhomina (2010) and partly
Ullah et al. (2011) as they focus on psychological traits and motivations explaining EO. This
approach demonstrates that these kinds of personality related factors significantly influence
entrepreneurial behavior and hence may also have an indirect effect on firm performance.
Another noteworthy issue is the financial resource availability issue pointed out in a few
studies (e.g. Entrialgo et al., 2001; Salvato, 2004; Meynhardt and Diefenbach, 2012; Eggers
et al., 2013). The relationship between financial resources and EO is an important topic for
further research as the findings may have important practical and policy implications when
considering general means to support entrepreneurship. As the summary showed, the
empirical evidence regarding the drivers of EO is still meager, which justifies broadening the
scope of the examination of the literature to include a rather more general level of
entrepreneurship literature to obtain a better impression of factors affecting entrepreneurship.
2.3.2 Individual level entrepreneurship
Although the phenomenon of entrepreneurship exists at various levels of observations, we
focus here on entrepreneurship at the individual level. Therefore, so as not to exceed the scope
of this dissertation, the examination of the literature must be confined mainly to studies on the
determinants of individual level entrepreneurship.
Given the very nature of entrepreneurship, the angles from it has been approached in the
literature are multiple. The issues related to defining the concept of entrepreneurship likewise
give rise to variation in the ways entrepreneurship is measured i.e. the proxies for
entrepreneurship form a large group of variables.
The proxies for the level of entrepreneurship which have been used in the literature have
typically included entry rate as measured by the number of new start-up business
incorporations and small firm birthrate, as measured by the registration of a firm (Reynolds et
al., 1994) or self-employment rates (Parker and Robson, 2004). Less objective measures
derived from survey questionnaires or interviews have also been used as proxies for
entrepreneurship. For example, the probability of being self-employed (Cowling, 2000),
38
entrepreneurial spirit i.e. preferences for self-employment (Blanchflower et al., 2001;
Masuda, 2006), involvement in entrepreneurship (Grilo and Thurik, 2008), entrepreneurial
intentions i.e. intentions to act entrepreneurially within existing small and newly established
companies (Gird and Bagraim, 2008; Liñán et al., 2011; Goethner et al., 2012) and EO
(Salvato, 2004) have been utilized in studies focusing on the determinants of
entrepreneurship.
Given the usefulness of understanding the factors driving entrepreneurial activities, scholars
have tried to explain the determinants of entrepreneurship for the past three decades (Salvato,
2004). A one common approach to explaining entrepreneurship has been to use general
demographic variables such as level of education, age, gender, wealth or parent’s occupations
as possible determinants. For instance, Blanchflower and Oswald (1998) showed with data
from the UK that family’s wealth or sudden increase in wealth (through inheritance or gifts)
tend to increase a person’s entrepreneurial spirit. The findings of Masuda (2006) and Eggers
et al. (2013) emphasized the significant role of capital. In line with Blanchflower and Oswald
(1998) Masuda found that wealth or access to capital enhances entrepreneurial spirit, and
Eggers et al. (2013) showed that EO was positively influenced by the availability of financial
resources.
The role of family also seemed to have an effect on the level of entrepreneurship, as according
to Blanchflower and Oswald (1998) and Liñán et al. (2011) the presence of other
entrepreneurs in the family tended to have a positive effect on the level of entrepreneurial
intentions.
Gender has also been found to influence the level of entrepreneurial spirit or engagement.
Several studies (Blanchflower and Oswald, 1998; Cowling, 2000; Lin et al., 2000; Davidsson,
2006; Grilo and Thurik, 2008; Berglann et al., 2011) have shown that females typically
exhibit lower levels of entrepreneurship than men. On the other hand the results related to
gender are somewhat inconsistent, as Masuda (2006) showed with J apanese data that female
dummy had a positive effect on the entrepreneurship.
39
Cowling (2000) pointed out that age and education have also been consistently identified as
key determinants of entrepreneurial spirit. Masuda (2006) likewise showed that
entrepreneurial spirit was highest among 25-29 year-old people and being a college or
university graduate tended to raise the level of entrepreneurship. The findings of both
Cowling (2000) and Grilo and Thurik (2008) also emphasize the role of education as a
significant determinant of entrepreneurship. On the other hand the relationship between level
of education and entrepreneurship might be inverse-U shaped, as Berglann et al. (2011)
showed that scientists with a PhD are among the least entrepreneurial of all education groups.
Despite a lack of consensus on many aspects of entrepreneurship, Grilo and Thurik (2008)
noted that on one thing scholars tend to agree: the level of entrepreneurial activity varies
systemically across countries or regions (Cowling, 2000; Blanchflower et al., 2001; Grilo and
Irigoyen, 2006; Minniti and Naudé, 2010). These country or region specific differences can be
traced to differences in factors such as differences in labor market legislation, social security
regimes, tax environment, economic growth, income level, unemployment rate etc. (Reynolds
et al., 1994; Grilo and Irigoyen, 2006; Lasch et al., 2007) or to intrinsic cultural differences.
These cognitive approaches especially have recently attracted considerable interest (Liñán et
al., 2011).
The variation in the level of entrepreneurship has led many scholars to examine the cultural,
social and psychological factors which may be its determinants. Furthermore, there has
recently been re-emergence of interest in personality factors in entrepreneurship research and
a direct call for a psychological approach (Pines et al., 2012). Several studies have
demonstrated that cultural factors such as values, beliefs, and attitudes influence a wide range
of behaviors, including the level of entrepreneurship (Thomas and Mueller, 2000; Freytag and
Thurik, 2007). For instance, Kets de Vries (1977) argued that value systems contribute to
entrepreneurship. Morris et al. (1994) showed that high levels of entrepreneurship can be
explained by such cultural values as freedom, independence, self-sufficiency, individualism,
achievement, and materialism. In a similar manner Davidsson and Wiklund (1997) showed
that prevailing values can be considered important determinants of the level of
entrepreneurship.
40
Therefore, based on the findings in the literature that values can be deemed determinants of
the level of entrepreneurship, and, moreover, as Uy (2011) stated that personal values are at
the very core of the diverse world of human behavior and every decision and action is a
manifestation of those values it is justifiable to further explore the relationship between
personal values and the level of entrepreneurship. Given the plethora of different values in the
literature, the focus of this dissertation is on work related values, since it is reasonable to
assume that the entrepreneur’s behavior is a reflection of the factors he values the most.
2.3.3 Organizational characteristics
Studies explaining EO by organizational characteristics have shown that the structure of the
organization, management styles, compensation mechanisms, etc. may have an effect on the
level of EO (Salvato, 2004; Morris et al., 2007; Meynhardt and Diefenbach, 2012). But on the
other hand, when the focus is on EO in very small firms where the organizational structure is
typically very low, the most relevant organizational characteristic explaining the level of EO
may be the firm’s financial resource base. Eggers et al. (2013) showed that in the case of
Austrian SMEs the availability of financial resources had a positive impact on EO and on a
more general level Blanchflower et al. (2001) and Masuda (2006) showed that wealth or
access to finance tend to increase the entrepreneurial spirit. Therefore it is relevant to discuss
the role of finance behind the EO.
Reviewing the definitions relating to innovativeness and risk-taking, it is easy to notice that
R&D and new technologies are closely related to innovativeness whereas heavy borrowing,
and/or committing large portions of corporate assets are related to risk-taking. As these
abovementioned actions presuppose liquidity or financial slack in the form of cash or the
ability to borrow it, it seems plausible that a firm’s financial resources and profile may
support EO.
The relationship between liquidity and entrepreneurial action is not clear as there are different
views on this in the literature. Scholars like Penrose (1959) argued that slack enables
management to act entrepreneurially and seize the perceived growth opportunities. Slack
41
resources are also seen to support organizational innovation. According to this view financial
slack could play a positive role behind EO.
Another view is that high liquidity has a negative effect on management’s willingness to act
entrepreneurially. According to Bradley et al. (2011) “resource slack entices managers to be
administrative rather than entrepreneurial in their management approach.”. In a similar
manner a substantial resource base may cause risk aversion among managers as they try to
safeguard their present positions. This view is also shared by George (2005), who argued that
a significant financial resource base may decrease managers’ willingness to exploit new
entrepreneurial opportunities. To highlight the negative role of financial resources Bradley et
al. (2011) stated that the most recent research has recognized that resource constraints can
trigger entrepreneurial behaviors. One aspect related to financial slack was the ability to
borrow, although firm may be able to borrow funds management may be reluctant to do so.
This is known as a conservative financial management or policy, which can be defined as a
policy of low leverage implying that managers prefer to keep debt ratios low for the sake of
risk reduction (Marchina and Mura, 2010). Conservative financial management has been
noted to be an important issue especially in the small-firm context (Covin and Slevin, 1989)
and moreover Miller (2011) mentioned the possible limiting role of conservative financial
structures on EO and what types of financial structures support it. Therefore it is appropriate
to include the role of a firm’s financial characteristics in the context when examining the
antecedents of EO.
2.3.4 Work values
Owners of small businesses have a strong influence on the firm’s strategy, actions, and
responses to changes in the surrounding business environment. This central role of the owner-
manager has been recognized in the small business and entrepreneurship literature, and
empirical evidence also suggests that entrepreneurs are a heterogeneous group of individuals
in terms of professional expectations or values. Scholars have noted that human values are at
the very heart of the complex world of human behavior and every decision and action is a
manifestation of those values (Warr, 2008; Gahan and Abeysekera, 2009; Kaasa, 2011; Uy,
2011). Similarly, according to Gahan and Abeysekera (2009), it has been shown that among
42
the many types of life values, work values are considered to be significant determinants of
individuals’ work-related behaviors. Hence the work values of the entrepreneur are most
likely to be key determinants of entrepreneurially oriented behavior.
Ros et al. (1999) argued that work values are a specific expression of general values in the
work setting and refer to what a person in general wants out of work. Both Ros et al. (1999)
and Lyons et al. (2006) defined work values as generalized beliefs about the desirability of
certain attributes of work or behavior (e.g. working with other people) and work-related
outcomes or end-states (e.g. high pay). Work values have been found to be relatively stable
and enduring over time (Rokeach, 1973; Meglino and Ravlin, 1998). They are hierarchically
ordered in the individual’s mind (Lyons et al., 2010) and underlie people’s ideas of what is
important to them when making important work-related decisions (Ros et al., 1999).
Despite a plethora of different labels, definitions, and work value typologies, there appears to
be a consensus on at least two or three fundamental types of values (Ros et al., 1999; Kaasa,
2011). A trichotomous classification of values was introduced by Elizur (1984) and according
to this values can be divided into the following types of work values: (1) intrinsic or self-
actualization values, (2) extrinsic or security or material values, (3) social or relational values.
The intrinsic values pertain to the inherent psychological satisfactions of work such as
interest, responsibility, challenge, variety, self-development or intellectual stimulation.
Secondly, extrinsic values are related to high income, material possessions, benefits such as
generous holidays, job security and comfort through good working conditions (e.g. Elizur,
1984; Vinken, 2007; Lyons et al., 2010). Third, social values are related to affective
interpersonal relations: belonging, acceptance, a fair supervisor (Kaasa, 2011). Ros et al.
(1999) argued that there should also be a fourth distinctive type of values and they suggested
that the fourth type of values, namely status or prestige values, should be concerned with
power, achievement, advancement of status and recognition.
In the entrepreneurship and small business literature studies explicitly measuring work values
are mostly limited to using work values as a predictor of career choice. If we look at some
studies focusing on the work values of business founders versus those embarking on other
43
careers, the results reveal that typically business founders exhibited higher levels of intrinsic
work values (Fagenson, 1993). These findings could imply a positive relationship between
intrinsic work values and the level of entrepreneurship. This issue needs further investigation
with more precise proxies for entrepreneurship. Furthermore, some studies have shown that
strategic business choices regarding issues such growth or adaptivity vs. rigidity, reflect the
work values of managers (Smith and Miner, 1983; Lafuente and Salas, 1989; Singh, 1989).
44
3. RESEARCH DESIGN AND METHODS
3.1 Overview of the research design
This dissertation includes five separate articles. Each of these focuses on the main themes of
the dissertation from different aspects. Table 2 summarizes the datasets, sources and research
methods of this dissertation.
Table 2. Research design
Article Data Analysis methods
1. Entrepreneurial orientation:
growth and profitability of
Finnish small and medium-sized
enterprises
Cross-sectional survey data from
2009, number of respondents 194,
response rate 19%. Income statement
and balance sheet data between 2004
and 2007, obtained from commercial
database Voitto+.
Principal component analysis,
linear regression analysis and
two-way analysis of variance.
2. The impact of global economic
crisis on SMEs – does
entrepreneurial orientation
matter?
Cross-sectional survey data from
2009, number of respondents 194,
response rate 19%. Income statement
and balance sheet data between 2004
and 2009, obtained from commercial
database Voitto+.
Principal component analysis and
linear regression analysis.
3. Does international
entrepreneurship make firms
more vulnerable? – the impact of
global economic crisis on Finnish
SMEs
Cross-sectional survey data from
2008, number of respondents 255,
response rate 22% and cross-sectional
survey data from 2009, number of
respondents 194, response rate 19%.
Income statement and balance sheet
data between 2006 and 2010, obtained
from commercial databases Voitto+
and Amadeus.
Principal component analysis and
linear regression analysis.
4. Entrepreneurial orientation in
small firms – values-attitudes-
behavior approach
Cross-sectional survey data from
2009, number of respondents 194,
response rate 19%. Income statement
and balance sheet data between 2005
and 2009, obtained from commercial
database Voitto+.
Structural equation modeling with
partial least squares approach.
5. What drives EO in small firms?
Roles of the owner-manager and
financial conditions
Cross-sectional survey data from
2009, number of respondents 194,
response rate 19%. Income statement
and balance sheet data from 2009,
obtained from commercial database
Voitto+.
Principal component analysis and
linear regression analysis.
45
3.2 Data collection and methods of analysis
The survey data used in all five articles was collected during spring 2009 by means of a pre-
tested structured survey questionnaire. The questionnaire contained items related to a fairly
wide variety of themes from legal environment to entrepreneurship and the effects of the
recent global downturn. The results of this survey related to other themes than those addressed
here were utilized in other doctoral theses. The questionnaires and cover letter, including an
assurance of the confidentiality of the survey, were mailed to 1,026 randomly selected firms
with annual sales turnover between 1 and 10 million Euros. As prior research considers CEOs
and founders the “single most knowledgeable and valid information sources” (Lechner et al.,
2006, p. 525), the questionnaires were addressed directly either to the owner-manager or to
the CEO of the firm, following a key-informant approach. Two weeks after the first mailing
round we sent reminder letters to firms which had not yet responded. After these two mailing
rounds we received responses from 193 firms, yielding a satisfactory response rate of 19%
(193/1,026). It was possible to connect the financial statements of the respondents with the
survey results yielding a large dataset containing the subjective responses from the owners or
CEOs and objective income and balance sheet based figures, hence we had at our disposal a
many sided and unique dataset.
Table 3 presents basic descriptive statistics (means, standard deviations, minimum and
maximum values) of the firms in our dataset. The firms were mainly in the mature stage as the
average age was 20 years and the youngest firms were also four years old, hence our sample
does not contain firms in the most critical stage of the lifecycle. The firms are small both in
terms of sales and number of employees as, for instance, the average annual sales is around
two and a half million Euros. One interesting pattern is clearly visible in the profitability
figures as there are remarkable decreases from 2007 to 2009, hence the effect of the economic
crisis is clearly visible in our sample. The average EO was slightly above the value of three
(out of five) and there also seems to be deviation in the level of EO among Finnish SMEs.
Averages of work related values reveal that in their work the entrepreneurs value most highly
those aspects which give them psychological satisfaction. Almost as important as the
immaterial gains from the work seems to be the material aspect. Extrinsic values scored
nearly as high as the intrinsic values, suggesting that the benefit, salary, and job security are
also very important to the entrepreneurs. Moreover, the social relationships etc. and status and
46
power seem to be collectively clearly less important factors among the things the work offers
the entrepreneurs. One conclusion could be drawn from this pattern of how the values divided
into two separate groups. It seems that the entrepreneurs in SMEs are really doing their jobs
for themselves, as they do not attach much importance to having either power of influence
over other people, public acknowledgement or social relationships with other people.
Table 3. Descriptive statistics
Variable Mean Std. dev. Min Max
Firm age 20.00 12.00 4.00 107.00
Sales (million €), avg. 2005-2009 2.48 1.84 0.4 9.79
Number of employees 2009 17.98 20.91 1.00 150.00
Return on total assets 2009 (%) 8.94 18.14 -83.72 59.21
Return on total assets 2008 (%) 15.13 15.69 -36.00 71.46
Return on total assets 2007 (%) 19.63 13.54 -2.83 64.84
EO 3.32 0.69 1.44 4.89
Extrinsic work values 4.01 0.76 2.00 5.00
Intrinsic work values 4.24 0.53 2.40 5.00
Status work values 3.34 0.83 1.00 5.00
Social work values 3.11 0.84 1.25 5.00
Regarding the methods of analysis this dissertation mainly relied on principal component
analysis, multiple linear regression analysis and structural equation modeling with the partial
least squares (PLS) approach using SmartPLS 2.0 software (Ringle et al., 2005). Following
are brief and simple descriptions of each of the methods utilized.
Hair et al. (1998) described principal component analysis as a statistical approach that can be
used to analyze interrelationships between a large number of variables and to explain these
variables in terms of their common underlying dimensions. The objective is to find a way of
condensing the information contained in a number of original variables into a smaller set of
variables with a minimum loss of information. By providing an empirical estimate of the
structure of the variables considered principal component analysis is a highly appropriate
method for creating summated scales to represent latent constructs such as EO.
47
Linear regression analysis according to Hair et al. (1998) is the appropriate method of
analysis when a single metric dependent variable is presumed to be related to metric
independent variable(s). The objective of this method is to predict the changes in the
dependent variable in response to changes in the independent variable. Thus it is a suitable
technique, for instance, when the aim is to study the relationship between EO and profitability
or growth.
Structural equation modeling is a technique that allows separate relationships for each of a set
of dependent variables. It is the most appropriate and most efficient estimation technique for a
series of separate multiple regression equations estimated simultaneously and allows several
variables to be used for a single independent or dependent variable (Hair et al., 1998). PLS is
an appropriate structural equation modeling method in the context of this dissertation since
PLS has the ability to produce more stable estimators than covariance-based structural
equation modeling with small sample sizes and it is also able to work with indicators that do
not follow the normal distribution (Harms et al., 2010).
3.3 Measures used in the dissertation
The measures related to the main themes of this dissertation are widely used and well
established in the literature. All the key items used here are listed in the Table 4 and discussed
below. The roots of EO are in the early 1980’s, when Miller and Friesen (1982) developed a
scale to measure levels of EO, the attributes that are now, 30 years later, used for measuring
EO are generally based on Miller’s and Friesen’s scale refined by Covin and Slevin (1989).
We utilized these nine items to capture the three dimensions of EO. However, the items in this
dissertation were adapted slightly to be more appropriate to the context of small enterprises in
Finland. Knight (1997) has shown that this scale performs well in terms of both reliability and
validity and also possesses a unique factor structure when tested in multilingual settings. It is
therefore suitable for measuring the construct of entrepreneurship in different countries
although it originated in the U.S.
48
In this dissertation the work values were measured on a scale adapted from three very similar
scales used by Lyons et al. (2006), Lafuente and Salas (1989), and Elizur (1984). The
measure included 19 items capturing the characteristics of intrinsic work values, extrinsic
work values, status work values and social work values. All items were assessed on a five-
point Likert scale with the anchors 1 =not at all important, 5 =of utmost importance.
49
Table 4. The key items used in the dissertation
CONSTRUCT DIMENSION ITEM
E
O
Innovativeness In our company, new ideas come up all the time.
Innovativeness Continuous renewal and innovation are important for our company
Innovativeness Lately we have launched many new products/ services.
Innovativeness We invest heavily in developing new products, services and business
practices.
Proactiveness Our company often acts before the competitors do.
Proactiveness We aim at being at the forefront of development in our business sector.
Risk-taking We prefer the cautious line of action even if some opportunity might be
lost that way. (Reversed)
Risk-taking Bold action is necessary to achieve our company’s objectives.
Risk-taking
In uncertain situations we are not afraid to take substantial risks.
(Covin and Slevin, 1989)
W
o
r
k
v
a
l
u
e
s
Extrinsic I can get a secure income from the business
Extrinsic I can get a sufficient monetary reward for my work
Extrinsic I can obtain wealth through the business
Intrinsic The work offers challenges where I can apply my skills
Intrinsic The work is inspiring
Intrinsic I can learn or create something new
Intrinsic I can affect the organization’s success
Intrinsic I can enjoy my work
Status I can manage and organize other people’s work
Status The work is respected by others
Status I can advance in my career
Social I can work in a business owned by my family
Social The work has an impact on the society
Social I can offer employment to others
Social I can leave a solid business to the next owner generation
(Elizur, 1984; Lafuente and Salas, 1989; Lyons et al., 2006)
50
Table 4. Continued
CONSTRUCT DIMENSION ITEM
E
f
f
e
c
t
s
o
f
E
c
o
n
o
m
i
c
D
o
w
n
t
u
r
n
The downturn has decreased our sales
The downturn has decreased our profitability
The crisis makes our operations harder overall
Customers have canceled their orders
We have not been able to pay dividends
We have cut down the principal owner’s salary
It has been hard to get financing
Lack of financing jeopardizes our future
The crisis increases the risk of bankruptcy
We have canceled investments due to lack of financing
We have delayed our investments
Our interest margin has been raised
We have dismissed personnel
We have laid off personnel
We have outsourced our operations
We’ve had to lower prices
Competition has become more aggressive
Our customers’ terms of payment have become longer
Our credit losses have increased
Our suppliers have tightened their payment terms
(Geroski and Gregg, 1993)
The items measuring the effect of the economic crisis on firm’s operational level were
adapted from the scales used by Geroski and Gregg (1993). Their survey contained 32
detailed questions. The questions were divided into three main sections: “effects of the
recession”, “human resource management” and “company organization”. The aim was to
ascertain how severely the firms were affected by the recession; how much the recession
51
affected their trading position, pay arrangements, their workforce composition and their
potential for financing (credit limits by banks). In our questionnaire some of the original items
were omitted as they were not deemed suitable for small Finnish firms. The final measure
included 20 items all assessed on a five-point Likert scale with the anchors 1 =totally
disagree, 5 =totally agree
The annual balance sheets and income statements were obtained from commercial databases
namely Amadeus and Voitto+. This information was used for calculating measures of
financial performance. Several different financial performance measures are included in the
analysis representing sales growth, size of the firm (total assets, turnover, number of
employees), liquidity (quick ratio, current ratio), profitability (return on assets, profit margin),
risk level etc. Most of the performance measures above are frequently used in the EO
literature as discussed earlier, and therefore their use in this dissertation is justified to obtain
comparable results. Liquidity is not used as a performance measure so often, but as Carton
and Hofer (2006) stated, it is also an appropriate measure of performance as it refers to the
ability of a firm to meet its financial obligations in a timely manner. Moreover, they remarked
that liquidity measures represent only one of the dimensions of the performance and therefore
are not alone sufficient to represent the construct of performance. Carton and Hofer (2006,
p.72) also noted that “the critical performance issue relative to liquidity is whether the
organization has or is developing enough readily accessible capital to continue to operate.”. In
this light it seems that the liquidity dimensions of performance are especially relevant during
economically turbulent times, when the income flows are decreasing but still the most
significant costs such as labor costs, rents or interests are harder or slower to cut down.
Moreover, Lugovskaya (2010) showed that, especially in the case of SMEs, liquidity is a very
important factor as gaps in cash flows can make it particularly vulnerable.
3.4 Issues related to surveys
Although in many cases survey questionnaires are the only way to obtain the desired data on a
larger scale there are also some issues and biases related to the technique which should be
acknowledged. Generally, it is assumed that when people fill out a survey questionnaire, their
answers are based on the substantive meaning of the items to which they respond. However, it
52
has been known for a long time that people’s answers are also influenced by content irrelevant
factors (Baumgartner and Steenkamp, 2001). This means that all inventories and
questionnaires are prone to possible distortion of the data. This problem is due to an
individual’s particular pattern of responding to the items. Such behavior patterns are of two
general types: response styles and response sets. The response style means that the individual
tends to select disproportionately a particular response category regardless of item content.
Whereas response sets mean that the individual responds to item content in such a way as to
portray himself in other than a true light (e.g. social desirability) (O’Neill, 1967). For
instance, in the case of EO one manager may respond to the questionnaire items with the
firm’s desired strategies, while another may use its emergent strategies (Dess et al., 2011).
We also conducted a test for non-response bias by comparing the early (first-round)
respondents with the late responders (second-round) on the assumption that there were no
differences between early and late responders (Armstrong and Overton, 1977). No significant
differences were found between these groups in the distributions of the sum variables.
Another test for the representativeness of our data was the comparison of responding and non-
responding firms in terms of size; the information was retrieved from the Voitto+database for
the full sample of 1,026 firms. The size distributions of non-responding and responding firms
turned out similar (Chi
2
=1.62).
The utilization of self-reported data from a single informant may entail a risk of common
method bias (Podsakoff et al., 2003). However, the owner-manager is considered to have the
best information about the strategic vision and managerial practices, which would be very
hard to measure without some degree of subjectivity. The measurement of work values
especially necessitates subjective evaluation and reporting. Furthermore, entrepreneurship
scholars frequently use self-reports which have also been shown to be reliable (Chaganti et
al., 2002).
53
4. SUMMARY OF THE ARTICLES AND RESULTS
This chapter introduces the articles composing Part II of the dissertation. The articles, their
overall objectives and main findings are introduced in a condensed manner.
The overall objective of this dissertation is, on the one hand, to explore the implications of EO
for a firm’s performance and coping with harsh economic conditions and, on the other hand,
to examine which entrepreneur and firm specific factors may be the antecedents of EO. The
first three articles focus on the performance implications of EO and the last two take EO as
dependent variable. The articles are now presented in the order of appearence: Article 1 starts
by examining how EO affects a firm’s profitability, growth, and risk level. Article 2 then
expands the examination of the performance implications of EO by examining at operational
level the role of EO and the impact of the economic crisis on SMEs. Article 3 concentrates on
the dimensions of EO and on the firm’s degree of internationalization and moreover examines
how these factors affect a firm’s financial performance during a period of recession. Article 4
utilizes the value-attitudes-behavior framework to investigate the relationship between an
entrepreneur’s work-related values and entrepreneurially oriented behavior. Finally, Article 5
continues with this same theme but adds firm specific financial conditions and the experience
of the entrepreneur into the analysis when examining the antecedents of EO.
4.1 Entrepreneurial Orientation: Growth and Profitability of Finnish Small
and Medium-Sized Enterprises
4.1.1 Overall objective
The purpose of the Article 1 was to examine the relationship between EO and firm
performance. In this article we tested whether the EO has a positive influence on firm’s
profitability and growth. Second, in this article it was investigated how the different
dimensions of EO are related to firm’s level of actual riskiness measured by financial
statement based figures. The context of economic crisis was not yet present in this study as
the latest financial statement was from the year 2007.
54
4.1.2 Main findings
As analysis method linear regression analysis was used and one of the independent variables
was EO variable. The findings of this article showed that the EO does not have an impact on
firm’s profitability measured by return on assets. Hence, here our findings are somewhat
contradictory to previous literature. On the other hand, our results showed that the EO has a
positive effect on firm’s actual growth level. Our results did not show significant results when
we were measuring the impact of EO on one year growth but the relationship turned to be
significant when the dependent variable was five year average of sales growth. Hence, the EO
seems not to be a “quick fix” rather it has its effect in longer run. The result supports the
general anticipation that EO is fundamentally pursuing growth for firms. One of the findings
of this article was the positive link found between the risk-taking dimension of EO and the
actual accounting figures based riskiness of the firm. Firms which had higher levels of risk-
taking propensity showed also higher levels in the variation of profitability. Moreover, our
interaction results here indicated that firms with higher level of strategic risk-taking produces
higher level of profitability as well. This finding implied that the risk-return relationship is
found also among small, non-listed companies.
4.2 The impact of global economic crisis on SMEs – does entrepreneurial
orientation matter?
4.2.1 Overall objective
Article 2 investigated if there are some firm-specific intrinsic strategic characteristics which
may enable firms to cope better with harsh economic conditions in the surrounding
environment. This article focused on EO and its role in how a firm’s financial performance
and operations related to sales and profitability, short and long-term financing, personnel,
competitive situation and terms of payment are affected by the ongoing financial crisis.
55
4.2.2 Main findings
The article showed that different dimensions of EO have opposite effects on a firm’s financial
performance during a time of recession. The results were obtained by linear regression
analysis. Among the independent variables one variable represented risk-taking and another
innovativeness and proactiveness. Those firms which are habitually more willing to take risks
were affected more dramatically by the crisis than less risk-prone firms. Similarly, firms
exhibiting higher levels of innovativeness and proactiveness performed better during this
period.
As regards the relationship between the dimensions of EO and the manager’s perceived
impact of the crisis on the firm’s operations, the article demonstrates that the overall impact of
the recession was more detrimental to firms with more risk-taking propensity. These risk-
taking firms had problems especially in operations related to both short and long-term
financing. For instance, firms have been unable to pay dividends, raising finance has been
hard and interest rate margins had risen, leading to a situation where firms had to delay
investments. Moreover the managers felt that the lack of financing was detrimental to the
future of the firm.
4.3 Does international entrepreneurship make firms more vulnerable? – the
impact of global economic crisis on Finnish SMEs
4.3.1 Overall objective
Article 3 focused on how different dimensions of EO and a firm’s degree of
internationalization affect financial performance during times of turbulence. It has been
pointed out in the literature (e.g. Yusuf, 2002) that the relationship between EO and a firm’s
performance needs to be scrutinized more when the business environment exhibits great
amounts of uncertainty. The overall objective of this paper was to increase the understanding
of how degree of internationalization, risk-taking, innovativeness and proactiveness are
related to a firm’s performance measured by various key ratios.
56
4.3.2 Main findings
In this article we used linear regression analysis to test how Finnish small and medium-sized
firms were affected by a global economic crisis and if they could mitigate the negative effects
of the economic turmoil by being more entrepreneurially oriented. We moreover tested how a
firm’s international activity affects its performance during the different stages of an economic
crisis. Our main findings showed that the stage of a recession may determine how different
strategic choices affect a firm’s performance. The findings of this study demonstrated that
risk-taking is detrimental to profitability and liquidity during the first stage of an economic
crisis, whereas innovativeness and proactiveness can mitigate the negative effects of the crisis
on liquidity. Interestingly, the firm’s level of internationalization had effects similar to those
of risk-taking. During the first years of the crisis firms which were internationally active
suffered more and when the turmoil was abating the international activity drove profitability
up again. The results also highlighted the contradictory nature of the EO dimensions, which is
an interesting finding relating to the ongoing discussion on the nature of the entire EO
construct.
4.4 Entrepreneurial Orientation in small firms – a values-attitudes-behavior approach
4.4.1 Overall objective
Article 4 focused on the values and value systems of entrepreneurs and their effects on an
entrepreneur’s attitudes and his/her behavior. The main aim of this article was to increase the
understanding of the antecedents of entrepreneurially oriented behavior. In this article we
utilized the values-attitudes-behavior framework to examine how an entrepreneur’s work
related values affected his attitudes towards growth and survival and finally how the values
and attitudes shaped the entrepreneurially oriented behavior.
4.4.2 Main findings
This article demonstrated that the values-attitudes-behavior framework is a functional
construct, also in the context of entrepreneurship. Psychological antecedents such as work
values affected entrepreneurs’ attitudes towards growth and survival and also their actual
57
behavior. The results obtained using structural equation modeling with the PLS approach
showed that entrepreneurs with higher intrinsic work values behaved more entrepreneurially.
The finding implies that entrepreneurs who value challenges, self-development or intellectual
stimulation are more innovative, proactive and willing to take risks. Attitudes related to
growth also had a positive effect on EO. One very interesting finding was that attitudes
related to growth were found to be a mediator between intrinsic work values and
entrepreneurial behavior. This finding implied that the mechanisms found with general values
are also valid in the context of work values as intrinsic work values had an indirect effect on
entrepreneurial behavior through the more concrete growth attitudes.
4.5 What drives EO in small firms? Roles of the owner-manager and financial
conditions
4.5.1 Overall objective
Article 5 expanded the investigation of the antecedents of EO, started in the previous article.
Besides psychological factors such as the personal values of the owner-manager this study
also included factors such as the business founding experience of the entrepreneur and the
firm’s financial characteristics such as financial slack and conservatism in the search for
factors affecting the level of EO.
4.5.2 Main findings
The main findings of this study obtained by linear regression analysis show that the main
drivers for EO in small firms were the personal work related values of the owner-manager and
his/her business founding experience. The approach in this study was somewhat simpler than
in the preceding study as in this article we tested only the direct effects. As in the preceding
article intrinsic work values were found to have a positive effect on EO. Extrinsic or material
values related e.g. to benefits, job security, and comfort, had a negative effect on EO. These
findings also appear plausible if we look at both the definition of the values and compare it to
the definitions of EO. It was entirely to be expected that some linkage that was found.
Valuing job security and comfort especially may reduce the willingness to take risks or act in
58
innovative ways. Values related to status, power, and influence also enhanced the level of EO.
In this case the result may imply that those individuals who value status, power, and perhaps
public acknowledgement, are more willing to take risks and to innovate. As reported
elsewhere in the entrepreneurship literature (Salvato, 2004) the entrepreneur’s prior
experience has a positive effect on the level of EO. It was surprising that financial resources
turned out not to have an effect on EO: In this respect our findings differed from those of
Eggers et al. (2013), who showed that financial resources have a positive effect on EO.
4.6 Summary of overall results
The purpose of this section is to give a reader a clear idea of the most relevant relationships
found to be significant in the framework of this dissertation. The Figure 4 sums up all the
relevant findings of the five articles forming the second part of the dissertation. The ovals in
the figure illustrate the key concepts of the dissertation, EO and its dimensions they behaved
in our data, risk-taking as one separate factor whereas innovativeness and proactiveness
merged into one factor. Merging the two dimensions of EO into one has not usually been
done in earlier studies as they generally treat EO as a multidimensional or unidimensional
construct (Rauch et al., 2009). The merging of the innovativeness and proactiveness
dimensions into one factor can be nevertheless justified, as Miller (2011) argued that
combining the dimensions of EO may be warranted when the components are highly
correlated, as in this case. Similarly, previous studies have also found that innovativeness and
proactiveness are often highly correlated (Wang, 2008; Li et al., 2009; Kraus, 2013) whereas
the correlations between risk-taking and innovativeness and proactiveness are low (Kraus et
al., 2012; Lechner and Gudmundsson, 2012). The solid boxes are the performance indicators,
which were used in the analysis as dependent variables and the boxes with broken lines are
factors used to explain EO. Solid arrows indicate significant positive relationships whereas
broken arrows represent significant negative effects.
When studying EO in the context of small and medium-sized enterprises the main finding was
that EO has a positive effect on a firm’s growth over a longer time period here the findings
were in line with those of earlier studies (e.g. Covin et al., 2006; Harms et al., 2010).
Contrary to earlier finding in the literature, EO has no impact on the profitability of the firm.
59
This finding highlights the concern related to combining performance measures of different
performance dimensions into one single measure, as different dimensions like growth and
profitability may collide, and it is moreover hard to draw more specific conclusions about the
role of EO if using only a one combined performance measure.
When the focus is on the dimensions of EO and their performance implication, the results
revealed the conflicting role of risk-taking and innovativeness-proactiveness. The conflict is
most obvious in the case of liquidity, as risk-taking tends to decrease it while innovativeness-
proactiveness has the opposite effect. Furthermore, risk-taking was negatively related to both
profitability and growth. Similarly, risk-taking had a negative effect on how managers felt the
crisis had impacted their firms. As the negative role of risk-taking is emphasized by the
results it is worth remembering that these effects were captured during the economic crisis
and that the role of risk-taking may be highly context reliant. The contradictory effects of the
EO dimensions on performance have also been reported in earlier studies hence the results of
this dissertation are in line with earlier findings. For instance, Lumpkin and Dess (2001) and
Lechner and Gudmundsson (2012) showed that the separate dimensions of EO may have
conflicting effects on performance.
60
Figure 4. Summary of significant relationships in the articles
After the performance implications of EO the second main theme in this dissertation was the
examination of the antecedents of EO. Here a set of work related values and attitudes, prior
experience and firm’s financial characteristics were used to explain the EO that can be
considered to be behavior. The financial characteristics were omitted from Figure 4 because
they did not have an impact on EO hence this finding was in contrary to the findings of
Entrialgo et al. (2001) and Eggers et al. (2013).
Similarly to Salvato (2004) and Altinay and Wang (2011) the results of this dissertation
showed that the prior entrepreneurship experience of the entrepreneur promotes the level of
EO, suggesting that the more experienced entrepreneurs exhibit more innovative, proactive,
and risk-taking behavior. Intrinsic and status values like the attitudes towards growth had the
same kind of impact on EO. Similar findings can also be found in earlier studies as the
Innovativeness
-proactiveness
Risk-taking
Growth
Profitability
Sales and
Size
Liquidity
Entrepreneur’s
experience
Status work
values
Extrinsic work
values
Intrinsic work
values
Growth attitude
Perceived
impact on
short/long
term
financing
=negative effect
=positive effect
Perceived
overall
impact of
the crisis
61
intrinsic work values resemble rather closely the need for achievement factor that was found
to positively affect the level of EO (Okhomina, 2010). On the other hand, extrinsic values
which are linked e.g. to benefits, job security, and comfort tend to decrease the propensity to
behave entrepreneurially.
Interestingly, the results also showed that the attitudes related to growth mediated between
intrinsic work values and entrepreneurial behavior. This indicates that the mechanisms found
with general values are also valid in the context of more specific values as values have an
indirect effect on behavior through the more concrete and domain-specific attitudes.
The contribution and the implications of these results and the whole dissertation are discussed
in the following chapter.
62
5. CONCLUSIONS
The main aim in this dissertation was to explore the performance implications of EO during a
period of economic crisis causing extraordinary turbulence to the business environment. The
second aim was to explore the factors determining the level of EO. In the latter aim the focus
was mostly on entrepreneurs’ work related values as work values are often viewed as a crucial
determinant of individuals’ work related behavior.
This chapter gives answers to the research questions set in the introductory chapter and
presents the theoretical and practical contributions of the dissertation. It also discusses the
limitations of the dissertation as well as questions that were not thoroughly addressed, giving
some guidelines and suggestions for future research.
5.1 Answering the research questions
This section provides more detailed answers to the research questions of this dissertation.
First, answers will be provided to the two sub-research questions. After that the main research
question of the dissertation “What are the main drivers and performance implications of EO
for SMEs in time of economic crisis?” will be answered.
The first sub-question was “What are the performance implications of EO and the role of EO
in how firms are treated by the crisis at operational level?” The first three articles were
aimed to shed light on this question.
The Article 1 focused on the implications of EO on the dynamics of profitability and growth
and provided evidence that EO is positively related to firm performance in general. Similarly
to the findings of Harms et al. (2010) results of this article indicated that EO has a significant
and positive effect on a firm’s growth. Furthermore, the results also revealed an interesting
pattern as there was no significant relationship between EO and growth rate over one year, but
instead EO had a positive effect on the five-year-average growth rate. This implies that EO
cannot be seen as a “quick fix” that instantly affects the performance of the firm.
63
Another interesting finding was a relationship between the risk-taking dimension and the risk
measure based on financial figures. Firms exhibiting the highest levels of strategic risk-taking
had the highest levels of financial risk. Moreover, profitability seemed also be related to these
two risk measures as the risk level was decidedly high in the category of the most profitable
firms. In light of these findings it can be concluded that EO definitely has implications for
growth, especially in the longer term, suggesting that an investment in EO today is an
investment for the future. Furthermore, the risk-taking component of EO significantly
determines the objective risk profile of the firm.
The second article approached the research sub-question from whether EO can mitigate the
negative effects of economic crisis on a firm’s performance and operations. The findings of
the article 2 showed that the innovativeness-proactiveness and risk-taking dimensions of EO
have opposite effects on a firm’s financial performance during times of economic crisis. The
risk taker firms were hit harder by the crisis and on the other hand the firms exhibiting higher
levels of innovativeness and proactiveness performed better. Hence this dissertation showed
that the dimension of EO may have conflicting effects and this finding is consistent with those
of earlier studies (Lumpkin and Dess, 2001; Lechner and Gudmundsson, 2012).
The relationship between the dimensions of EO and the manager’s perceived impact of the
crisis on the firm’s operations emphasized the negative role of risk-taking. The overall impact
of the economic crisis was more detrimental for risk-taking firms. Similarly, these risk-taking
firms had problems related to finance.
For this issue there is no single right answer, rather trying to answer this question raised even
more questions relating to the nature of the EO construct and to the correct approach to
addressing the concept. If EO is considered a reflective construct, then the answer to the
question might be that in the case of the economic crisis pursuing high levels of EO may lead
to adverse outcomes in issues related to finance, but on the other hand the positive effects on
revenues might offset these problems. The overall effect of EO may still be positive despite
the conflicting dimensions.
Article 3 addresses the sub-question by focusing on how the dimensions of EO and the firm’s
level of internationalization affect firm’s financial performance. The results showed the
64
context dependence of the performance implications of both the dimensions of EO and the
firm’s level of internationalization. The findings showed that risk-taking is detrimental during
the first stage of an economic crisis, whereas innovativeness and proactiveness can
counterbalance its negative effects. The firm’s level of internationalization had effects similar
to those of risk-taking. During the first years of the crisis firms which were internationally
active suffered more and when the turmoil abated the international activity increased
profitability
As the phase of a crisis determined how different strategic choices affect a firm’s
performance, the results emphasize the importance of a firm’s ability to adjust its actions and
strategic choices as much as possible. Results here support the view of Zahra and Garvis
(2000) that striving to pursue as high EO as possible may lead to undesired end results under
certain conditions.
The second sub-question was “What are the main drivers of EO in SMEs?” Articles four and
five were intended to answer this question.
The Article 4 approached the sub-question by focusing on the roles of entrepreneurs’ work
values and goal related attitudes as determinants of EO. The findings showed that an
entrepreneur’s intrinsic work values related to the psychological satisfaction offered by the
job and an individual’s attitudes towards growth are significant determinants of EO.
Moreover, the growth attitudes were found to have a mediating effect between values and EO.
The finding showed that those entrepreneurs who value the challenges and intellectual
stimulation offered by the job behave more entrepreneurially i.e. they are more innovative,
proactive, and risk-taking when running their firms. This result also showed that frameworks
relating to general values and how they affect attitudes and ultimately behavior are also valid
in the context of entrepreneurship.
The fifth and the last article examined if entrepreneurs’ work values, prior experience and
firms’ financial attributes can explain the level of EO. Similarly to the findings of article 4
intrinsic work values were positively related to EO. Values related to status as well as
65
entrepreneur’s prior experience also had a positive effect on entrepreneurial behavior.
Findings related to effects of CEO’s experience are somewhat contradictory as Salvato (2004)
and Altinay and Wang (2011) found a positive relationship between experience and the level
of EO whereas the results of Sciascia et al. (2006) indicated a negative relationship. Extrinsic
values related to comfort, benefits, and job security had a negative effect on EO and the firms’
financial attributes had no effect at all, the latter finding is in contrast to the findings of
Eggers et al. (2013), whereas factors resembling intrinsic work values have been found to
have a positive effect on EO (Okhomina, 2010).
Individuals’ values related to work and prior experiences of entrepreneurship are strong
determinants of EO. The personal hierarchy and weighting of the work values also influence
the individual’s work related behavior as some of the values impacted positively and some of
them negatively on EO.
Since answers to sub questions were found, it is possible to answer the main research
questions of this dissertation “What are the main drivers and performance implications of EO
for SMEs in time of economic crisis?” As the firm’s growth rate is considered to be one of the
tools for measuring firm performance, EO was found to be a significant and positive factor
behind a firm’s long run growth. Hence we can say that EO has positive implications for firm
performance. But on the other hand during a time of economic crisis the different dimensions
of EO can have both positive and negative effects on the performance of SMEs. Therefore it
is difficult to give one definitive answer to this question as the performance implications tend
to be highly context and measure dependent. The performance implications varied across
different stages of the crisis and were also dependent on what performance measure was used.
The main drivers of EO in SMEs were found to be the personal work related values of the
entrepreneur and his/her prior experience as an entrepreneur. The intrinsic work values related
to interest, responsibility, challenge, variety, self-development or intellectual stimulation and
values related to status, power, achievement, advancement status, and recognition had a
positive effect on the level of EO. On the other hand extrinsic values which are related to high
income, material possession, benefits such as generous holidays, job security, and comfort
through good working conditions lower the level of EO.
66
5.2 Contributions
This dissertation contributes to the academic entrepreneurship literature. The economic crisis
offered an extraordinary and unique opportunity to study the implications of EO. Although it
is a much studied concept, there is a consensus in the literature that the relationship between
EO and firm performance depends on the conditions in the surrounding business environment
(Covin and Slevin, 1989) and that it needs further examination (Yusuf, 2002). The crisis
caused instability and uncertainty in the business environment that has not afflicted
economies since the 1930’s (Smallbone et al., 2012). Therefore the timing of this dissertation
makes it one of the first to study the implications of EO on SMEs and it derives some of its
contribution from the first mover’s advantage. Moreover, there is currently actually a call for
studies of this kind as Kraus et al. (2012) pointed out that there are very few studies focusing
on the firm capabilities and conditions needed when firms face acute market uncertainty and
instability.
Besides being in the forefront of studies focusing on EO during a time of extreme
environmental and market turbulence, this dissertation took novel approaches to the topic. It
successfully combined items from earlier studies (Geroski and Gregg, 1993) on the effects of
recession. Those effects are now described in much greater detail than mere changes in the
figures of income statements. Here the focus is on the effects of the crisis at the operational
level, meaning that we had for our analysis data based on managers’ own perceptions of how
the crisis affected the firms’ trading position, work force composition, access to finance etc.
This can be considered one the greatest contributions of the work as it provides new
knowledge about the implications of EO on the factors which firms face every day while
doing business.
This dissertation also contributes the rather limited body of literature focusing on the
determinants of EO (e.g. Salvato, 2004; J alali, 2012; Eggers et al., 2013). As the mainly
positive performance implications of EO have been shown in many studies (e.g. De Clercq et
al., 2010; Grandeet al., 2011) and the importance of entrepreneurship is widely recognized, it
is worthwhile to try to find the factors which promote EO. From the limited group of studies
67
attempting to explain EO, an even more limited number of studies (Okhomina, 2010; Ullah et
al., 2011) focus on psychological traits as antecedents of EO even though there is currently a
call for such an approach in the literature. For instance, Pines et al. (2012, pp. 96) argued that
“in recent years research on entrepreneurial personality has re-emerged as an important
topic of investigation and leading entrepreneurship scholars have noted that a psychological
approach is necessary to understand entrepreneurship”. In addition, Miller and Le Breton-
Miller (2011) argued that there is room for studies focusing on the impact of different types of
owners on EO. Likewise Wiklund (1999) argued that when applied to small firms, EO might
be seen as a result of individual-level determinants. Therefore, the single main and significant
contribution of this dissertation is the successful application of work related values as
antecedents of EO and showing that personal work values significantly determine
entrepreneurially oriented behavior. This relationship has many practical implications to be
discussed later.
This dissertation also makes some minor contribution to the discussion on the context
dependency of the EO-performance relationship. Grande et al. (2011) discussed the effect of
risk dimensions on performance. Although studies such as Frank et al. (2007) have shown a
positive relationship between risk-taking propensity and business success, Grande et al.
(2011) doubted that under market turbulence this relationship might be negative. This
dissertation confirms this assumption by showing that the risk-taking dimension actually
weakened the firm performance during times of economic crisis.
5.3 Managerial, theoretical, and policy implications
The findings of this dissertation have several implications for managers, scholars, and policy-
makers. First, from the practical point of view, our results concerning the relationship
between EO and firm performance suggest that managers should be aware of the effects of
EO on performance and the firm’s operations in different business cycles. Especially when
breaking down the overall effect of EO into smaller elements, the results reveal that managers
should notice that actions related to risk-taking such as venturing into the unknown, heavy
borrowing, or committing large portions of corporate assets in uncertain environments may
have negative effects during economic downturns. Therefore managers should consider before
68
making decisions about investments or ventures entailing high risk. On the other hand, the
results of the dissertation emphasizes the positive role of innovativeness and proactiveness,
suggesting that managers should be innovative and proactive as these factors seem to mitigate
the negative effects inherent in extremely harsh business conditions.
This dissertation also has implications for scholars, as it demonstrates that the relationship
between EO and firm performance is not so straightforward and there are many aspects to be
considered. First, the measures used to gauge the performance may easily alter the findings,
especially if the measures used combine different performance measures into one single
indicator as the different performance dimensions may be contradictory and cancel each other
out, for instance growth and profitability. Therefore it may be worthwhile to use only one
dimension of performance at a time in analyses if only possible. Similar issues are worth
bearing in mind regarding the concept of EO. Depending on whether EO is treated as a
unidimensional phenomenon or if the level of analysis is the subdimensions of EO can also
affect the results. As our results revealed, the dimension can have opposite effects on
performance and the context may also determine which dimension is stronger. For instance,
our results showed that, depending on the stage of the recession, different dimensions affected
performance at different stages.
Our results also have implications for policy-makers as the empirical evidence of the
dissertation suggests that EO and especially innovativeness have positive effects on firm
performance and they also may counterbalance the impact of economic turbulence. Therefore,
policy-makers should be aware of the importance of creating such support programs which
endorse entrepreneurship and initiatives for innovations of SMEs. Moreover, including issues
related to entrepreneurship in all levels of education could enhance the awareness of
entrepreneurship as a career choice and hence increase the level of vital entrepreneurial
activity in the future. Among many other things, with these aforementioned actions it may be
possible to reinforce the respective national economy the better to cope with the challenges of
the future.
The confirmation of the relationship between personal work values and entrepreneurially
oriented behavior may have many practical implications. For instance, when recruiting team
69
members or employees for projects, start-ups or other ventures where entrepreneurial
behavior is needed, applicants’ work values could be used at least as some level indicator
regarding their tendencies towards the desired behavior. In career counseling the work values
could likewise be used as tools for identifying possible future entrepreneurs.
5.4 Limitations and suggestions for future research
Some caution should be exercised in the interpretation of the findings because, like all
research, this dissertation has also some limitations that should be discussed. First, as some of
the models used here are somewhat simplified, it might be important to consider adding
relevant moderating or mediating variables such as those related to environment and cultural
factors into the analyses. Another limitation to be noted is the lack of an opportunity to
control for the effects of the business sector. This is a limitation to be noted as some previous
studies have noted that industry plays an important role in the EO-performance relationship.
Unfortunately, our rather small data set did not allow us to test the industry effects
successfully. Secondly, a longitudinal study design – rather than the present cross-sectional
design – would give us a better platform to explore the causal relationships among the
research variables. Now the lack of longitudinal data reduces confidence in causal effects,
especially in the case of such relationships which have not been so extensively examined in
the literature, such as the relationship between financial conditions and EO. The closeness of
the measurement time point of EO and the annual performance indicators might also cause
some problems regarding the estimated relationships as the construct of EO is associated with
firm success, particularly in the long-run (Eggers et al., 2013). For this limitation the passing
of time is the only cure. Thirdly, there are some possible limitations caused by our rather
small sample consisting of fairly mature and conventional small firms. The type of sample
firms may have an effect on how the work values affect behavior, hence this limitation has an
interesting implication for future research; focusing on new ventures or social enterprises
would offer a different perspective on the topic. Similarly another sample based limitation of
this dissertation is the survivorship bias, as this dissertation only examined entrepreneurs
currently in business. An assessment of those entrepreneurs who were not successful would
enhance the understanding of EO and its relationship with failures of firms. Finally, one
limitation is related to the generalizability of the results. As this dissertation focused only on
70
Finland, it remains to be seen if our findings can be transferred to other countries. This issue
is especially relevant as regards the work values and their relationship to EO as values are
generally argued to be related to (national) culture and hence they may vary across countries
(Defever et al., 2011).
The framework of work values together with EO also opens up some possible avenues for
future research. One possible topic would be to study the context dependence of work values.
For instance, to examine if there are differences in work values across entrepreneurs in
different industries or to compare some special cases like entrepreneurs in social enterprises
and to see whether they value different aspects in their work than entrepreneurs in general.
71
REFERENCES
Altinay, L. and Wang, C., L. (2011) The influence of an entrepreneur’s socio-cultural
characteristics on the entrepreneurial orientation of small firms. Journal of Small Business
and Enterprise Development, 18 (4), 673-694.
Andersén, J . (2010) A critical examination of the EO-performance relationship. International
Journal of Entrepeneurial Behaviour & Research, 16 (4), 309-328.
Audretsch, D., B. (2002) The dynamic role of small firms: Evidence from the U.S. Small
Business Economics, 18, 13-40.
Armstrong, J., S. and Overton, T., S. (1977) Estimating nonresponse bias in mail surveys.
Journal of Marketing Research, 14 (3), 396-402.
Avlonitis, G., J . and Salavou, H., E. (2007) Entrepreneurial orientation of SMEs, product
innovativeness, and performance. Journal of Business Research, 60 (5), 566-575.
Baird, I., S. and Thomas, H. (1985) Toward a contingency model of strategic risk taking.
Academy of Management Review, 10 (2), 230-243.
Baker, W., E. and Sinkula, J., M. (2009) The complementary effects of market orientation and
entrepreneurial orientation on profitability in small businesses. Journal of Small Business
Management, 47 (4), 443-464.
Baumgartner, H. and Steenkamp, J .-B., E., M. (2001) Response styles in marketing research:
a cross-national investigation. Journal of Marketing Research, 38 (2), 143-156.
Bhuian, S., N., Menguc, B. and Bell, S., J. (2005) Just entrepreneurial enough: the moderating
effect of entrepreneurship on the relationship between market orientation and performance.
Journal of Business Research, 58 (1), 9-17.
72
Blanchflower, D., G. and Oswald, A. (1998) What makes an entrepreneur? Journal of Labor
Economics, 16 (1), 26-60.
Blanchflower, D., G., Oswald, A. and Stutzer, A. (2001) Latent entrepreneurship across
nations. European Economic Review, 45, 680-691.
Berglann, H., Moen, E., R., Røed, K. and Skogstøm, J ., F. (2011) Entrepreneurship: Origins
and returns. Labour Economics, 18 (2), 180-193.
Bradley, S., W., Wiklund, J . and Shepherd, D., A. (2011) Swinging a double-edged sword:
The effect of slack on entrepreneurial management and growth. Journal of Business
Venturing, 26, (5), 537-554.
Calantone, R., J ., Cavusgil, S., T. and Zhao, Y. (2002) Learning orientation, firm innovation
capability, and firm performance. Industrial Marketing Management, 31 (6), 515-524.
Carton, R., B. and Hofer, C., W. (2006) Measuring Organizational Performance – Metrics for
Entrepreneurship and Strategic Management Research. Cheltenham, UK, Edward Elgar.
Cassia, L. and Minola, T. (2012) Hyper-growth of SMEs Toward a reconciliation of
entrepreneurial orientation and strategic resources. International Journal of Entrepreneurial
Behaviour & Research, 18 (2), 179-197.
Chaganti, R., Cook, R. and Smeltz, W., J . (2002) Effects of styles: Strategies and systems on
the growth of small businesses, Journal of Developmental Entrepreneurship, 7 (2), 175-192.
Covin, J., G. and Slevin, D., P. (1989) Strategic management of small firms in hostile and
benign environments. Strategic Management Journal, 10 (1), 75-87.
Covin, J ., G. and Slevin, D., P. (1990) New venture strategic posture, structure, and
performance: an industry life cycle analysis. Journal of Business Venturing, 5 (2), 123-35.
73
Covin, J ., G. and Slevin, D., P. (1991) A conceptual model of entrepreneurship as firm
behavior. Entrepreneurship Theory and Practice, 16 (1), 7-25.
Covin, J ., G., Slevin, D., P. and Schultz, R., L. (1994) Implementing strategic missions:
effective strategic, structural, and tactical choices. Journal of Management Studies, 31 (4),
471-503.
Covin, J., G., Green, K., M., and Slevin, D., P. (2006) Strategic process effects on the
entrepreneurial orientation-sales growth rate relationship. Entrepreneurship Theory and
Practice, 30 (1), 57-81.
Covin, J ., G. and Wales, W. (2012) The measurement of entrepreneurial orientation.
Entrepreneurship Theory and Practice, 36 (4), 677-702.
Cowling, M. (2000) Are entrepreneurs different across countries? Applied Economics Letters,
7 (23), 785-789.
Davidsson, P. and Wiklund, J . (1997) Values, beliefs and regional variation in new firm
formation rates. Journal of Economic Psychology, 18 (2-3), 179-199.
Davidsson, P. (2006) Nascent entrepreneurship: empirical studies and developments.
Foundations and Trends in Entrepreneurship Research, 2 (1), 1-76.
De Clercq, D., Dimo, D. and Thongpapanl, N. (2010) The moderating impact of internal
social exchange processes on the entrepreneurial orientation-performance relationship.
Journal of Business Venturing, 25 (1), 87-103.
Defever, C., Pandelaere, M. and Roe, K. (2011) Inducing value-congruent behavior through
advertising and the moderating role of attitudes toward advertising. Journal of Advertising, 40
(2), 25-37.
74
Dess, G., G., Pinkham, B., C. and Yang, H. (2011) Entrepreneurial orientation: assessing the
construct’s validity and addressing some of its implications for research in the areas of family
business and organizational learning. Entrepreneurship Theory and Practice, 35 (5), 1077-
1090.
Dimitratos, P., Lioukas, S. and Carter, S. (2004) The relationship between entrepreneurship
and international performance: the importance of domestic environment. International
Business Review, 13 (1), 19-21.
Eggers, F., Kraus, S., Hughes, M., Laraway, S. and Snycerski S. (2013) Implications of
customer and entrepreneurial orientations for SME growth. Management Decision, 51 (3),
524-546.
Entrialgo, M., Fernández E. and Vázquez, C., J. (2001) The effect of the organizational
context on SME’s entrepreneurship: Some Spanish evidence. Small Business Economics, 16
(3), 223-236.
Fagenson, E., A. (1993) Personal value systems of men and women entrepreneurs versus
managers. Journal of Business Venturing, 8 (5), 409-430.
Frank, H., Lueger, M. and Korunka, C. (2007) The significance of personality in business
start-up intentions, start-up realization and business success. Entrepreneurship & Regional
Development, 19 (3), 227-251.
Freytag, A. and Thurik, R. (2007) Entrepreneurship and its determinants in a cross-country
setting. Journal of Evolutionary Economics, 17 (2), 117-131.
Frishammar, J. and Hörte, S., Å. (2007) The role of market orientation and entrepreneurial
orientation for new product development performance in manual firms. Technology Analysis
& Strategic Management, 19 (6), 765-788.
75
Grande, J ., Madsen, E., L. and Borch, O., J. (2011) The relationship between resources,
entrepreneurial orientation and performance in farm-based ventures. Entrepreneurship &
Regional Development, 23 (3-4), 89-111.
George, B., A. and Marino, L. (2011) The epistemology of entrepreneurial orientation:
conceptual formation, modeling and operationalization. Entrepreneurship Theory and
Practice, 35 (5), 989-1024.
George, G., Wood, D., R., J r. and Khan, R. (2001) Networking strategy of boards:
implications for small and medium-sized enterprises. Entrepreneurship and Regional
Development, 13 (3), 269-285.
George, G. (2005) Slack resources and the performance of privately held firms. Academy of
Management Journal, 48 (4), 661-676.
Geroski, P., A. and Gregg, P. (1993) Coping with the Recession, National Institute Review,
146, 64-75.
Gird, A. and Bagraim, J ., J . (2008) The theory of planned behavior as predictor of
entrepreneurial intent amongst final-year university students. South African Journal of
Psychology, 38 (4), 711-724.
Goethner, M., Obschonka, M., Silbereisen, R., K. and Cantner, U. (2012) Scientists’ transition
to academic entrepreneurship: Economic and psychological determinants. Journal of
Economic Psychology, 33 (3), 628-641.
Grewal, R. and Tansuhaj, P. (2001) Building organizational capabilities for managing
economic crisis: the role of market orientation and strategic flexibility. Journal of Marketing,
65 (2), 67-80.
Grilo, I. and Irigoyen, J .,M. (2006) Entrepreneurship in the EU: to wish and not to be. Small
Business Economics, 26 (4), 305-318.
76
Grilo, I and Thurik, R. (2008) Determinants of entrepreneurial engagement levels in Europe
and the US. Industrial and Corporate Change, 17 (6), 1113-1145.
Hair, JR., J ., F., Anderson, R., E. Tatham, R., L. and Black, W., C. (1998) Multivariate data
analysis. Upper Saddle River, New Jersey, Prenctice Hall.
Hakala, H. (2011) Strategic orientations in management literature: three approaches to
understanding the interaction between market, technology, entrepreneurial and learning
orientation. International Journal of Management Reviews, 13 (2), 199-217.
Harms, R., Reschke, C., H., Kraus, S. and Fink, M. (2010) Antecedents of innovation and
growth, analyzing the impact of entrepreneurial orientation and goal-oriented management.
International Journal of Technology Management, 52 (½), 135-152.
Hult, G., T., M., Hurley, R., F. and Knight, G., A. (2004) Innovativeness: its antecedents and
impact on business performance. Industrial Marketing Management, 33 (5), 429-438.
J antunen, A., Puumalainen, K., Saarenketo, S. and Kyläheiko, K. (2005) Entrepreneurial
orientation, dynamic capabilities and international performance, Journal of International
Entrepreneurship, 3 (3), 223-243.
J alali, S., H. (2012) Environmental determinants, entrepreneurial orientation and export
performance: Empirical evidence from Iran. Serbian Journal of Management, 7 (2), 245-255.
Kaasa, A. (2011) Work values in European countries: Empirical evidence and explanations.
Review of International Comparative Management, 12 (5), 852-862.
Keh, H., T., Nguyen, T., T., M. and Ng, H., P. (2007) The effects of entrepreneurial
orientation and marketing information on the performance of SMEs. Journal of Business
Venturing, 22 (4), 592-611.
77
Kemelgor, B., H. (2002) A comparative analysis of corporate entrepreneurial orientation
between selected firms in the Netherlands and the USA. Entrepreneurship and Regional
Development, 14 (1), 67-87.
Kets de Vries, M., F., R. (1977) The entrepreneurial personality: A person at the crossroads.
Journal of Management Studies, 14 (1), 34-57.
Knight, G., A. (1997) Cross-cultural reliability and validity of a scale to measure firm
entrepreneurial orientation. Journal of Business Venturing, 12 (3), 213-225.
Kohli, A., K. and J aworski, B., J . (1990) Market orientation: the construct, research
propositions, and managerial implications, Journal of Marketing, 54, 1-18.
Kraus, S., Coen Rigtering, J ., P., Hughes, M. and Hosman, V. (2012) Entrepreneurial
orientation and the business performance of SMEs: a quantitative study from the Netherlands.
Review of Managerial Science, 6 (2), 161-182.
Kraus, S. (2013) The role of entrepreneurial orientation in service firms: empirical evidence
from Austria. Service Industries Journal, 33 (5), 427-444.
Lafuente, A. and Salas, V. (1989) Types of entrepreneurs and firms: the case of new Spanish
firms. Strategic Management Journal, 10 (1), 17-30.
Lappalainen, J . and Niskanen, M. (2009) Does board composition and ownership structure
affect firm growth? Evidence from Finnish SMEs. Research in Economics and Business:
Central and Eastern Europe, 1 (1) 66-83.
Lappalainen, J . and Niskanen, M. (2012) Financial performance of SMEs: impact of
ownership structure and board composition. Management Research Review, 35 (11), 1088-
1108.
78
Lasch, F., Gundolf, K. and Kraus, S. (2007) The impact of unemployment on
entrepreneurship: Empirical evidence from France. International Journal of Business
Research, 7 (2), 1-8.
Lechner, C., Dowling, M. and Welpe, I. (2006) Firm networks and firm development: the role
of the relational mix. Journal of Business Venturing, 21 (4), 514-540.
Lechner, C. and Gudmundsson, S., V. (2012) Entrepreneurial orientation, firm strategy and
small firm performance. International Small Business Journal, 0(0), 1-25.
Li, Y.-H., Huang, J .-W. and Tsai, M.-T. (2009) Entrepreneurial orientation and firm
performance: The role of knowledge creation process. Industrial Marketing Management, 38
(4), 440-449.
Lin, Z., Picot, G. and Compton, J. (2000) The entry and exit dynamics of self-employment in
Canada. Small Business Economics, 15 (2), 105-125.
Liñán, F., Rodríguez-Cohard, J ., C. and Rueda-Cantuche, J ., M. (2011) Factors affecting
entrepreneurial intention levels: a role for education. International Entrepreneurship
Management Journal, 7 (2), 195-218.
Lumpkin, G., T. and Dess G., G. (1996) Clarifying the entrepreneurial orientation construct
and linking it performance. Academy of Management Review, 21 (1), 135-172.
Lumpkin, G., D. and Dess, G., G. (2001) Linking two dimensions of entrepreneurial
orientation to firm performance: the moderating role of environment and industry life cycle.
Journal of Business Venturing, 16 (5), 429-451.
Lugovskaya, L. (2010) Predicting default of Russian SMEs on the basis of financial and non-
financial variables. Journal of Financial Services Marketing, 14 (4), 301-313.
79
Lyons, S., T., Duxbury, L., E. and Higgins, C., A. (2006) A comparison of the values and
commitment of private sector, public sector, and parapublic sector employees. Public
Administration Review, 66 (4), 605-618.
Lyons, S., T., Higgins, C., A. and Duxbury, L. (2010) Work values: development of a new
three-dimensional structure based on confirmatory smallest space analysis. Journal of
Organizational Behavior, 31 (7), 969-1002.
Madsen, E., L. (2007) The significance of sustained entrepreneurial orientation on
performance of firms – a longitudinal analysis. Entrepreneurship & Regional Development,
19 (2), 185-204.
Marchina, M.-T. and Mura, R. (2010) Financial flexibility, investment ability, and firm value:
Evidence from firms with spare debt capacity. Financial Management, 39 (4), 1339-1365.
Marino, L., Strandholm, K., Steensma, K., H. and Weaver, M., K. (2002) The moderating
effect of national culture on the relationship between entrepreneurial orientation and strategic
alliance portfolio extensiveness. Entrepreneurship Theory and Practice, 26 (1), 145-160.
Masuda, T. (2006) The determinants of latent entrepreneurship in J apan. Small Business
Economics, 26 (3), 227-240.
Meglino, B., M. and Ravlin, E., C. (1998) Individual values in organizations: concepts,
controversies, and research. Journal of Management, 24 (3), 351-389.
Messersmith, J ., G. and Wales, W., J . (2013) Entrepreneurial orientation and performance in
young firms: the role of human resource management. International Small Business Journal,
31 (2), 115-136.
Merz, G., R. and Sauber, M., H. (1995) Profiles of managerial activities in small firms.
Strategic Management Journal, 16 (5), 551-564.
80
Meynhardt, T. and Diefenbach, F., E. (2012) What drives entrepreneurial orientation in the
public sector? Evidence from Germany’s Federal Labor Agency. Journal of Public
Administration Research and Theory, 22 (4), 761-792.
Minniti, M. and Naudé, W. (2010) What do we know about the patterns and determinants of
female entrepreneurship across countries? European Journal of Development Research, 22
(3), 277-293.
Miller, D. and Friesen, P., H. (1982) Innovation in conservative and entrepreneurial firms:
two models of strategic momentum. Strategic Management Journal, 3 (1), 1-26.
Miller, D. (2011) Miller (1983) revisited: A reflection on EO research and some suggestions
for the future. Entrepreneurship Theory and Practice, 35 (6), 873-894.
Miller, D., Le Breton-Miller, I. (2011) Governance, social identity, and entrepreneurial
orientation in closely held public companies. Entrepreneurship Theory and Practice 35 (15),
1051-1076.
Mintzberg, H. (1973) Strategy-making in three modes. California Management Review, 16
(2), 44-53.
Moreno, A., M. and Casillas, J., C. (2008). Entrepreneurial orientation and growth of SMEs: a
causal model. Entrepreneurship Theory and Practice, 32 (2), 507-528.
Morris, M., H., Davis, D., L. and Allen, J ., W. (1994) Fostering corporate entrepreneurship:
Cross-cultural comparisons of the importance of individualism versus collectivism. Journal of
International Business Studies, 25 (1), 65-89.
Morris, M., H., Coombes, S., Schindehutte, M. and Allen, J . (2007) Antecedents and
outcomes of entrepreneurial and market orientations in a non-profit context: Theoretical and
empirical insights. Journal of Leadership and Organizational Studies, 13 (4), 12-39.
81
Okhomina, D. (2010) Entrepreneurial orientation and psychological trait: the moderating
influence of supportive environment. Journal of Behavioral Studies in Business, 2 (May), 1-
16.
O’Neil, H., W. (1967) Response Style Influence in Public Opinion Surveys. Public Opinion
Quarterly, 31 (1), 95-102.
Parker, S., C. and Robson, M., T. (2004) Explaining international variations in self-
employment: evidence from a panel of OECD countries. Southern Economic Journal, 71 (2),
287-301.
Penrose, E. (1959) The theory of the growth of the firm, Wiley, New York.
Peters, M., Pfurtscheller, A., Wong, K., K., F. and Kraus, S. (2010) The influence of
entrepreneurial branding on entrepreneurial/growth orientations: an empirical study in the
Austrian tourism industry. International Journal of Business Research, 10 (2), 27-37.
Pines, A., M., Dvir, D. and Sadeh, A. (2012) Dispositional antecedents, job correlates and
performance outcomes of entrepreneurs’ risk taking. International Journal of
Entrepreneurship, 16, 95-112.
Podsakoff, P., M., MacKenzie, S., B., Lee, J ., Y. and Podsakoff, N., P. (2003) Common
method biases in behavioral research: A critical review of the literature and recommended
remedies. Journal of Applied Psychology, 88 (5), 879-903.
Qureshi, S. and Kratzer, J . (2011) An investigation of antecedents and outcomes of marketing
capabilities in entrepreneurial firms: An empirical study of small technology-based firms in
Germany. Journal of Small Business and Entrepreneurship, 24 (1), 49-66.
Rauch, A., Wiklund, J., Lumpkin, G., T. and Frese, M. (2009) Entrepreneurial orientation and
business performance: An assessment of past research and suggestions for the future.
Entrepreneurship Theory and Practice, 33 (3), 761-78.
82
Reynolds, P., Storey, D. J . and Westhead, P. (1994) Cross-national comparison of the
variation in new firm formation rates. Regional Studies, 27 (4), 443-456.
Ringle, C. and Wende, S. and Will, A. (2005) SmartPLS 2.0, Hamburg: University of
Hamburg.
Rokeach, M. (1973) The nature of human values. New York: The Free Press.
Ros, M., Schwartz, S. and Surkiss, S. (1999) Basic individual values, work values, and he
meaning of work. Applied Psychology: An International Review, 48 (1) 49-71.
Runyan, R., Droge, C. and Swinney, J . (2008) Entrepreneurial orientation versus small
business orientation: What are their relationships to firm performance? Journal of Small
Business Management, 46 (4), 567-588.
Salvato, C. (2004). Predictors of entrepreneurship in family firms. The Journal of Private
Equity, 7 (3), 68-76.
Sciascia, S., Naldi, L. and Hunter E. (2006) Market orientation as determinants of
entrepreneurship: An empirical investigation on SMEs. Entrepreneurship Management, 2 (1),
21-38.
Smallbone, D., Deakins, D., Battisti, M. and Kitching, J. (2012) Small business responses to a
major economic downturn: Empirical perspectives from New Zealand and the United
Kingdom. International Small Business Journal, 30 (7), 754-777.
Singh, S. (1989) Personality characteristics, work values and life styles of fast- and slow-
progressing small-scale entrepreneurs. Journal of Social Psychology, 129 (6), 801-805.
83
Smith, N. and Miner, J . (1983) Type of entrepreneurs, type of firm, and managerial
motivation: implications for organizational life cycle theory. Strategic Management Journal,
4 (4), 325-340.
Stam, W. and Elfring, T. (2008) Entrepreneurial orientation and new venture performance: the
moderating role of intra- and extraindustry social capital. Academy of Management Journal,
51 (1), 97-111.
Statistics Finland (2011) National Balance of Supply and Demand Quarterly. [e-database].
From:http://pxweb2.stat.fi/Dialog/varval.asp?ma=120_ntp_tau_102_en&ti=National+balance+of+s
upply+and+demand++quarterly+%28GDP+expenditure+approach%29+1990Q1-
&path=../Database/StatFin/kan/ntp/&lang=1&multilang=en [retrieved August 12, 2011]
Tan, J . and Tan, D., (2005) Environment-strategy coevolution and coalignment: a stacked-
model of Chinese SOEs under transition. Strategic Management Journal, 31 (2), 207-222.
Tang, J ., Tang, Z., Zhang, Y. and Li, Q. (2008) The impact of entrepreneurial orientation and
ownership type on firm performance in the emerging region of China. Journal of
Developmental Entrepreneurship, 12 (4), 383-397.
Thomas, A., S. and Mueller, S., L. (2000) A case for comparative entrepreneurship: Assessing
the relevance of culture. Journal of International Business Studies, 31 (2), 287-301.
Ullah,H., Dean, B., S. and Kaleem, M. (2011) A study of owner’s inherited factors affecting
entrepreneurial orientation in Khyber Pakhtunwkha-Pakistan. Institute of Interdisciplinary
Business Research, 3 (1), 712-725.
Uy, A., O., O. (2011) What motivates entrepreneurs? A study of the value systems of Filipino
entrepreneurs. International Journal of Entrepreneurship, 15, 73-95.
84
Van Stel, A., Carree, M. and Thurik, R. (2005) The effect of entrepreneurial activity on
national economic growth. Small Business Economic, 24, 311-321.
Vij, S. and Bedi, H., S. (2012) Relationship between entrepreneurial orientation and business
performance: a review of literature. The IUP Journal of Business Strategy, IX (3), 17-31.
Vinken, H. (2007) New life course dynamics: career orientations, work values and future
perceptions of Dutch youth. Young, 15 (1), 9-30.
Wales, W., J., Vishal, G., G. and Mousa, F-T. (2011) Empirical research on entrepreneurial
orientation: An assessment and suggestions for future research. International Small Business
Journal, published online 13 November 2011, DOI: 10.1177/0266242611418261, 1-27.
Wall, T., D., Michie, J., Patterson, M., Wood, S., J., Sheehan, M., Clegg, C., W. and West, W.
(2004) On the validity of subjective measures of company performance. Personnel
Psychology, 57 (1), 95-118.
Wang, C., L. (2008) Entrepreneurial orientation, learning orientation, and firm performance.
Entrepreneurship Theory and Practice, 34 (3), 635-657.
Warr, P. (2008) Work values: Some demographic and cultural correlates. Journal of
Occupational and Organizational Psychology, 81 (4), 751-775.
Wiklund, J . (1999) The sustainability of the entrepreneurial orientation–performance
relationship. Entrepreneurship Theory and Practice, 24 (1), 37-48.
Wiklund, J . and Shepherd, D. (2003) Knowledge-based resources, entrepreneurial orientation,
and the performance of small and medium-sized businesses. Strategic Management Journal,
24 (12), 1307–1314.
Wiklund, J . and Shepherd, D. (2005) Entrepreneurial orientation and small business
performance: a configurational approach. Journal of Business Venturing, 20 (1), 71-91.
85
Wiklund, J. and Shepherd, D., A. (2011) Where to from here? EO-as-experimentation, failure,
and distribution of outcomes. Entrepreneurship Theory and Practice, 35 (6), 925-946.
Wood, C., C., Holt, D., T., Reed, T., S. and Hudgens, B., J . (2008) Perception of corporate
entrepreneurship in Air Force organizations: Antecedents and outcomes. Journal of Small
Business and Entrepreneurship, 21 (1), 117-132.
Yaghubi, N.-M. and Naroei, M. (2011) Affecting factors on entrepreneurial orientation in the
industry. Chinese Business Review, 10 (10), 889-894.
Yusuf, A. (2002) Environmental uncertainty, the entrepreneurial orientation of business
ventures and performance. International Journal of Commerce & Management, 13 (3&4), 83-
103.
Zahra, N. (2013) Implications of demographic antecedents in determining the motivational
drives among women entrepreneurs: a Case study of women entrepreneurs venturing in
Lahore, Pakistan. Asian Journal of Business Management, 5 (1), 163-173.
Zahra, S., A. (2008) Being entrepreneurial and market driven: implications for company
performance. Journal of Strategy and Management, 1 (2), 125-142.
Zahra, S., A. (1986) A canonical analysis of corporate entrepreneurship antecedents and
impact on performance. Proceedings of the National Academy of Management, 46, 71-75.
Zahra, S., A. and Covin, J ., G. (1995) Contextual influences on the corporate
entrepreneurship-performance relationship: a longitudinal analysis. Journal of Business
Venturing, 10, 43-58.
Zahra, S., A. and Neubaum, D., O. (1998) Environmental adversity and the entrepreneurial
avtivities of new ventures. Journal of Developmental Entrepreneurship. 3 (2), 123-140.
86
Zahra, S., A. and Garvis, D. (2000) International corporate entrepreneurship and firm
performance: the moderating effect of international environmental hostility. Journal of
Business Venturing, 15 (5-6), 469-92.
Zainol, F., A. and Ayadurai, S. (2011) Entrepreneurial orientation and firm performance: The
role of personality traits in Malay family firms in Malaysia. International Journal of Business
and Social Science, 2 (1), 59-71.
PART II: THE ARTICLES
ARTICLE I
Soininen, J ., Martikainen, M., Puumalainen, K. and Kyläheiko, K. (2012).
ENTREPRENEURIAL ORIENTATION: GROWTH AND PROFITABILITY OF
FINNISH SMALL AND MEDIUM-SIZED ENTERPRISES.
International Journal of Production Economics, 140 (2), 614-621.
Copyright © Elsevier B.V. Reproduced with permission.
Entrepreneurial orientation: Growth and pro?tability of Finnish
small- and medium-sized enterprises
$
Juha Soininen
n
, Minna Martikainen, Kaisu Puumalainen, Kalevi Kyl ¨ aheiko
School of Business, Lappeenranta University of Technology, P.O. Box 20, 53851 Lappeenranta, Finland
a r t i c l e i n f o
Article history:
Received 15 April 2010
Accepted 26 May 2011
Available online 6 June 2011
Keywords:
SMEs
Risk
Entrepreneurial orientation
Performance
a b s t r a c t
Our paper investigates, whether there exist intrinsic strategic characteristics, which enables some ?rms
to tolerate economic dif?culties stronger than their companions. Tolerance as such also indicates if
SMEs as investments are providing return accordingly to their risk level. In our view, the differences in
entrepreneurial orientation could be a decisive explainer behind this phenomenon. This paper
contributes to previous literature by investigating, how the ?rm’s internal strategic behavior is able
to improve the ?rm performance, and also by showing that SMEs are providing the compensation of
risk to investors. Our results indicate that entrepreneurial orientation affects directly ?rm’s growth rate.
& 2011 Elsevier B.V. All rights reserved.
1. Introduction
Small- and medium-sized enterprises (SMEs) have become an
increasingly important component of economic development repre-
senting a substantial proportion of the national economies all around
the world (Paul et al., 2007; Karpak and Topcu, 2010). Recent
literature denotes that although large ?rms have historically been
main job creators, the trend has reversed in the last twenty years, as
the number of small- and medium-sized enterprises (SMEs) and jobs
created by them have remarkably increased. Previous research high-
lights that especially during economic downturns, the role of SMEs
and entrepreneurship is stronger (see for instance Carree and Thurik,
1998). Current global economic crisis seems to be especially hard for
large companies. Therefore, SMEs are facing strong expectations for
their role to be key players when economies will be recovering from
the present global recession. Previous research has also widely
investigated the ?rms’ characteristics creating pro?tability. However,
the results obtained are inconclusive or even contradictory. Conse-
quently, many researchers have concluded that more research is
needed in that area (e.g. Lumpkin and Dess, 1996), since different
business and institutional structures and industrial characteristics are
creating a large variability to ?ndings in this research area. Given the
important role of SMEs, it is essential to further investigate if there
exist some intrinsic strategic characteristics, which affect ?rm’s
growth and pro?tability.
Ever since the 1980s, entrepreneurial orientation (EO) has
emerged as a major construct within the strategic management
and entrepreneurship literature. Covin et al. (2006) de?ne EO as a
strategic construct whose conceptual domain includes certain
?rm-level outcomes and management-related preferences, beliefs,
and behaviors as expressed among a ?rm’s top-level managers.
Runyan et al. (2008) argue that EO is evidenced through visible
entrepreneurial tendencies toward innovativeness, proactiveness
and risk taking. Miller (1983) and later Covin and Slevin (1989)
operationalized these characteristics and found them central to
EO. According to Rauch et al. (2009) these three dimensions of the
EO construct can be de?ned as follows:
Innovativeness represents creativity and experimentation
through the introduction of new products/services as well as
technological leadership via R&D in new processes. It comes
close to the Schumpeterian idea of creating new combinations
(Jantunen et al., 2005).
Risk taking describes the nature of easily venturing into the
unknown, borrowing heavily, and/or committing remarkable
resources to ventures in uncertain environments.
Proactiveness is an opportunity-seeking, forward-looking per-
spective characterized by the introduction of new products and
services ahead of competition and acting in anticipation of the
future demand. This kind of opportunity-seeking and seizing
behavior has also been characterized as strategic agility
(Bullinger, 1999), and comes close to Teece’s (2007) idea of
dynamic capabilities that make it possible to sense weak
signals and seize them by entrepreneurial investment behavior.
In recent years there has been an increased focus on the
relationship between ?rm’s strategic orientation and ?rm perfor-
mance (Madsen, 2007). Prior studies have generally found a
Contents lists available at ScienceDirect
journal homepage: www.elsevier.com/locate/ijpe
Int. J. Production Economics
0925-5273/$ - see front matter & 2011 Elsevier B.V. All rights reserved.
doi:10.1016/j.ijpe.2011.05.029
$
Early version of this paper presented in 16th International Working Seminar
on Production Economics, Innsbruck, Austria, March 1–5, 2010.
n
Corresponding author. Tel.: þ358 5 621 7221; fax: þ358 5 621 7299.
E-mail addresses: juha.soininen@lut.? (J. Soininen),
minna.martikainen@lut.? (M. Martikainen),
kaisu.puumalainen@lut.? (K. Puumalainen), kalevi.kylaheiko@lut.? (K. Kyl ¨ aheiko).
Int. J. Production Economics 140 (2012) 614–621
positive relationship between EO and ?rm performance (Jantunen
et al., 2005; Wiklund and Shepherd, 2005; Madsen, 2007). However,
there are also studies where such a relationship has not been found
(Smart and Conant, 1994). One reason might be that the measure
that has been used to assess the ?rm performance has typically
been a combination of both pro?tability and growth measures
(Covin and Slevin, 1989; Wiklund, 1999; Avlonitis and Salavou,
2007). However, there are also few studies that have purely
explored the speci?c relationship between EO and the ?rm growth
(Covin et al., 2006; Moreno and Casillas, 2008). Findings of these
studies have con?rmed that there really exist a positive relationship
between EO and the ?rm’s rate of growth.
The purpose of this study is to explore whether there exist
positive relationships between EO and the ?rm pro?tability as
well as between EO and the ?rm’s rate of growth in the context of
Finnish SMEs. Although the relationship between the ?rm’s
entrepreneurial posture and its ?nancial performance is already
abundantly studied by the prior literature (e.g. Zahra and Covin,
1995; Keh et al., 2007) this study contributes to entrepreneurship
research in two respects. First, to be able to more thoroughly
investigate the importance of internal factors generating the
?rm’s growth and pro?tability, these two relationships (i.e.
EO&pro?tability and EO&growth) are analyzed separately. This
kind of an approach is rational and well grounded, since, e.g.
Moreno and Casillas (2008) argue that the traditionally used ?rm
performance concept that combines the indicators associated
with pro?tability and growth is two-dimensional in a way where
both of the dimensions can be sometimes contradictory. They also
point out that it would be worthwhile to explore whether there is
a positive relationship between the ?rms’s EO and its growth.
Moreover, these dimensions of EO&pro?tability and EO&growth
are analyzed separately to be able to conclude if risk taken,
measured as EO, is resulting SMEs to provide higher returns for
investors. As investors are seen for instance, ?rm owners. This is
highly relevant especially in the framework of non-listed SMEs,
since ?rm risk is especially dif?cult to measure for non-listed
companies, since market based risk measures, such as the beta,
cannot be used due to the lack of the daily stock price informa-
tion. Second, this paper contributes to previous literature by
investigating how different EO dimensions are related to the ?rm
risk. Moreover, we try to ?nd out whether the ?rm risk is
simultaneously positively linked with ?rm performance. Third,
as Rauch et al. (2009) point out prior EO literature has mainly
focused on the U.S. companies. In our view, Finland provides an
interesting new setting for this type of analysis, since it consti-
tutes a good example of a competitive and innovative business
environment. The SME’s can be said to be the backbone of the
Finnish economy. The importance of the SMEs in Finland can be
characterized by the facts that they are currently estimated to
represent 99.9% of all the Finnish business enterprises and to
employ 62% of the work force in the private sector. The SME’s
were also in the extremely salient role in the 1990s when Finland
was recovering from the one of the deepest recessions in western
world during the post-war era.
The paper is structured as follows: Section 2 de?nes our main
concepts, reviews the relevant literature and presents the
research hypotheses to be empirically analyzed. Then follows a
description of the methodology used in empirical research in
Section 3. In Section 4 the main ?ndings are presented. Finally,
Section 5 summarizes the results along with their implications.
2. Theoretical framework and hypotheses
A substantial amount of research has examined the concept of
entrepreneurial orientation (EO) during the last three decades so
that one can state that has become one of the central concepts in
the domain of entrepreneurship studies (Covin et al., 2006). For
instance, Rauch et al. (2009) point out in their meta-analysis, that
more than 100 studies dealing with EO have been conducted,
which has led to a wide acceptance of the conceptual meaning
and relevance of the concept.
2.1. The dimensions of entrepreneurial orientation concept
Miller (1983) conceptualized the three focal dimensions of EO
as innovativeness, risk taking and proactiveness and these three
dimensions have been since used consistently in the literature
(Dimitratos et al., 2004; Kemelgor, 2002). Lumpkin and Dess
(1996) describe the innovativeness as follows: Innovativeness
re?ects a ?rm’s Schumpeterian tendency to engage in and support
new ideas, novelty, experimentation, and creative processes that
may result in new products, services, or technological processes.
Innovativeness represents a basic willingness to depart from
existing technologies or practices and venture beyond the current
state of art. They see innovativeness as an important component
of an EO, because it re?ects an important means through which
?rms pursue new opportunities.
According to Baird and Thomas (1985) there are three different
types of strategic risk taking such as venturing in to the unknown,
heavy borrowing, and/or committing large portions of corporate
assets in uncertain environments. Similarly, Lumpkin and Dess
(1996) state that ?rms with entrepreneurial orientation are often
typi?ed by risk-taking behavior, such as incurring heavy debt or
making signi?cant resource commitments, in the interests of
obtaining high returns by seizing opportunities in the marketplace.
Rauch et al. (2009) describe proactiveness as an opportunity-
seeking, forward-looking perspective characterized by the intro-
duction of new services and products ahead of the competition
and acting in anticipation of future demand. In this context it
becomes close the modern interpretation launched by Teece
(2007) when de?ning dynamic capabilities as entrepreneurial
acts to sense weak signals and seize the opportunity by invest-
ment. Besides the three most commonly used dimensions above
Lumpkin and Dess (1996) argue that two additional dimensions
competitive aggressiveness and autonomy would also be salient
components of EO. Lumpkin and Dess (2001) de?ne these two
additional dimensions as follows: competitive aggressiveness is
said to re?ect the intensity of a ?rm’s effort to outperform
industry rivals, characterized by a strong offensive posture and
a forceful response to competitor’s actions. Autonomy is inde-
pendent action by an individual or team aimed at bringing forth a
business model or vision and carrying it through to completion.
However, the usage of the EO model with all the aforemen-
tioned ?ve dimensions has been rare in the EO literature (e.g.
George et al., 2001) when compared with the use of the model
with three dimensions. Moreover, Rauch et al. (2009) state that
the focal dimensions of EO are usually highly intercorrelated with
each other, which leads to combining these dimensions into one
single factor. Therefore, scholars such as Covin and Slevin (1989)
argue that the EO construct is best viewed as a unidimensional
concept, whereas Lumpkin and Dess (2001), for example, suggest
that the different dimensions of EO may relate differently to ?rm
performance and hence promote the use of the multidimensional
EO as an explainer. However, in this study we will be using the
unidimensional approach because it is more commonly used in
the research.
2.2. The EO–performance relationship
The modern business environment is an environment where
the pace of change is fast, product and business model lifecycles
J. Soininen et al. / Int. J. Production Economics 140 (2012) 614–621 615
are shortened, the future pro?t streams from existing operations
are uncertain and businesses need to constantly seek out new
opportunities. Therefore, ?rms may bene?t from adopting an EO,
i.e. being innovative, risk taking and proactive (Rauch et al., 2009).
Wiklund (1999) relates the positive in?uence of EO on perfor-
mance to the ?rst-mover advantages and the tendency to take
advantage of emerging opportunities implied by EO, i.e. to sense
weak signals and seize the opportunity. Zahra and Covin (1995)
argue that ?rms with EO can ‘‘skim’’ the markets ahead of their
competitors by targeting premium market segments and charging
high prices. Wiklund (1999) points out that these ?rms monitor
market changes and respond rapidly, thus capitalizing on emer-
ging opportunities. Innovation keeps them ahead of their compe-
titors, gaining a competitive advantage that leads to improved
?nancial results. Proactiveness gives the ?rms the capacity to
present new products or services to the market before their
competitors, which gives them also a competitive advantage.
Furthermore, Wiklund (1999) also states that there is a reason
to believe that the relation between EO and performance may be
especially strong in the context of small ?rms. Most likely,
smallness per se enhances ?exibility and innovation but limits
competitiveness in other strategic dimensions.
Several empirical studies have found that ?rms with high EO
perform better than ?rms with low EO. For example, Keh et al.
(2007) found out that EO plays an important role in enhancing
?rm performance. Similarly, Wiklund and Shepherd (2003) found
a strong correlation (r¼.34) between EO and performance.
Wiklund (1999) showed that investments in EO may be worth-
while for small ?rms since there is a positive relationship
between EO and performance and that the relationship actually
increases over time. On the other hand, some studies have shown
that the relationship between EO and performance is not that
straightforward. Bhuian et al. (2005) among others found that the
entrepreneurship is one of the key elements in organizational
success, but the relationship is shaped like inverted U, meaning
that a high degree of entrepreneurship is not always desirable in
certain market and structural conditions. In any case, we launch
our ?rst hypothesis according to the ‘‘received view’’ as follows:
H1. Entrepreneurial orientation is positively related to pro?t-
ability of SMEs.
The prior literature has not reached consensus on measures to
assess the small ?rm performance (Karpak and Topcu, 2010).
Several studies have used perceived performance indicator to
assess ?rm performance (Lumpkin and Dess, 2001; Wiklund and
Shepherd, 2003; Madsen, 2007; Runyan et al., 2008). The items that
were used to form the performance indicator typically based on a
manager’s subjective views about the ?rm’s pro?tability, growth
and market share in relative to its most important competitors.
On the other hand, some studies have utilized ?nancial statements
of ?rms to capture the both growth and pro?tability dimension of
company ?nancial performance (Bhuian et al., 2005; Covin et al.,
2006). One common factor for the performance indicators based
either on perceived data or secondary data is the fact that in both
cases the indicator contains growth measures and pro?tability
measures. However, according to Moreno and Casillas (2008) this
kind of an approach may not be the most suitable because the
growth dimension and pro?tability dimension may sometimes be
contradictory and, therefore, they should not be combined into one
single indicator.
Growth is the dominant goal of the entrepreneurial organiza-
tion stated Mintzberg (1973) almost four decades ago. Later on,
Lumpkin and Dess (1996) noted that an EO is, essentially, a
growth orientation. Similarly, Stewart and Roth (2001) referred to
entrepreneurial small business owners as growth oriented.
However, despite these widely acknowledged facts, the relation-
ship between EO and growth dimension of ?rm performance has
been studied remarkably seldom. Covin et al. (2006) argued that
EO effectiveness is appropriately measured using criteria that
re?ect a ?rm’s success at translating entrepreneurial opportu-
nities into growth trajectories. In their study they used sales
growth rate as a growth proxy when exploring the relation
between EO and growth. Findings of their study showed that
there is a positive relationship between EO and sales growth rate.
Furthermore, they also suggested that the effects of EO on a ?rm’s
growth rate depend on several strategic process-related variables.
On the other hand, Moreno and Casillas (2008) did not ?nd a
direct in?uence between EO and ?rm growth to be signi?cant.
However, their results suggested that there is an indirect relation-
ship via the mediating and moderating role of other variables
such as strategy, environment, or resources of the ?rm. According
to Moreno and Casillas (2008) their results underline the com-
plexity of the relationship between EO and ?rm growth. In spite
of the skeptic views we formulate our second hypothesis as
follows:
H2. Entrepreneurial orientation is positively related to growth
of SMEs.
2.3. Firm return and risk
Risk is a variable that has been used to calibrate required
return dating back already to merchants in ancient China.
Merchants used to adjust the price of their wares by the riskiness
of their trading routes. The greater the risk to get robbed and
loose income, the higher price they had to charge to maintain an
acceptable return on their invested assets (Lusk et al., 2008). This
same concept regarding the positive relationship between the risk
and the return is nowadays the cornerstone in ?nance theory.
Nickel and Rodriguez (2002) argue that this relationship arises
primarily from a risk-averse reasoning: people will not support
higher risk for the same level of return; higher risk will be
accepted only if it is compensated with a higher return.
Strong theoretical framework to show the relation between
risk-return is presented in ?nance literature captured by the
Capital Asset Pricing Model (CAPM; Sharpe (1964) and by
Lintner (1965)). CAPM relates ?rm returns directly to the ?rm
risk. The CAPM is depicted as below:
EðR
it
Þ ¼R
f
þb
i
ðEðR
m
ÞÀR
f
Þ, ð1Þ
where E(R
it
) is the expected return for stock i at time t. The term
R
f
is the risk-free rate, the term b
i
is the sensitivity to changes in
market portfolio of stock i, therefore the Beta is the measure of
systematic risk. The market risk premium is represented by the
term (E(R
m
)ÀR
f
), where E(R
m
) is the average return on the market.
CAPM states that the riskier is the ?rm the more return
investors are entitled to expect from the investment in the long
run. However, at the same time with the higher expectations in
returns the risk means higher variability in expected returns. The
relationship between risk and return has been widely tested with
?nancial data from the stock market, and using the beta of CAPM
as the risk measure (Nickel and Rodriguez, 2002). The achieved
results of the large set of literature are a little bit contradictory,
but the main conclusion is that theoretically CAPM stays solid.
Empirical results of the model vary depending on the research
setting, for instance the early studies in the area had obtained a
signi?cant positive relationship, as the CAPM theory postulates
(see Black et al., 1972; Fama and Macbeth, 1973). The risk-
expected return trade-off is also tested by using other techniques
than the CAPM, and a large number of studies (for instance,
Leo´ n et al., 2007) have found a positive signi?cant relationship
J. Soininen et al. / Int. J. Production Economics 140 (2012) 614–621 616
between expected market return and conditional variance (i.e.
risk) on equity indices.
Similarly, to the stock market framework above, the same
concept of the trade-off between risk and return has been also
brought into accounting and organizational research. In this ?eld
of research the ?ndings are somewhat contradictory. Some
studies have reported negative relationship between risk and
return (Bromilley, 1991), whereas for instance Fiegenbaum and
Thomas (1986) found a signi?cant relationship between market
risk measure and accounting return. In our research we are
investigating whether ?rm risk measured from ?nancial state-
ments is related to higher performance of the ?rm. Especially we
are interested to ?nd out if EO dimensions are found to be related
simultaneously to higher returns and higher risk and therefore we
formulate our third hypothesis as follows:
H3. The risk-taking component of EO is related to the higher
variability and level in pro?tability among SMEs over time.
3. Research method used
3.1. Sample and data collection
The empirical data used to test the hypotheses were drawn
from a mail survey conducted in spring 2009 by means of a
structured questionnaire. The initial population consisted of
Finnish small private limited companies (they typically have
few shareholders and are usually owner-managed family busi-
nesses) with a sales turnover between 1 and 10 million euros.
Hypotheses were tested in a multiple industry setting, because of
a greater generalizability. A total of 13,495 ?rms were identi?ed
from the Voittoþ- database, and a systematic random sample of
1026 ?rms was drawn. The pre-tested survey questionnaire with
an introductory cover letter was mailed to the respondents,
assured of con?dentiality and promised a summary of the results.
A follow-up was sent to those who had not responded within two
weeks. Final responses were received from 194 companies, yield-
ing a satisfactory effective response rate of 18.9% (194/1026).
It was possible to get ?nancial information about the companies
via Voittoþ database that is a commercial database containing
?nancial statements of over 82,000 Finnish ?rms. The ?nancial
measures used in this study are based on the ?nancial statements
of 2008. Nonresponse bias was checked on a number of key
variables, such as growth rate, pro?tability, sales and age and
EO, by comparing the early (?rst-round) respondents with the late
respondents (following the suggestions of Armstrong and Overton,
1977) and we did not ?nd any signi?cant differences between the
two groups.
3.2. Measures
We are utilizing 9 items to capture the three dimensions of EO
conceptualized by Miller (1983). The items are based on the work
of Covin and Slevin (1990). However, they are slightly adapted to
?t better with the context of Finnish small enterprises. A principal
component analysis of the EO items (see Table 1) resulted in two
components explaining together 61% of the variance in the items.
The items measuring innovativeness and proactiveness merged
into the ?rst component, while risk-taking items loaded highly on
the second component. The internal consistency of the scales was
good, as the Cronbach alpha value for innovativeness & proac-
tiveness was .865 and for risk taking .671, respectively.
Growth was measured by three different indicators: the last
year’s sales growth percentage and average growth over the past
?ve years represented actual growth and a multi-item scale called
growth orientation (GO) represented future growth aspirations.
The items of the growth orientation scale were measured on a
Likert scale (1¼completely disagree, 5¼completely agree) and
worded as follows: (1) our purpose is to grow without compro-
mising on pro?tability, (2) we intend to expand our business to
new customer segments, and (3) we intend to expand our
product/service offerings. The ?nal scale was computed as the
average value of the items and its internal consistency was
satisfactory (Cronbach alpha¼.693).
The sales growth percentages and pro?tability measures were
obtained from the Voittoþ- database. Pro?tability was evaluated
as return on assets (ROA) over the years 2004–2007. The average
value and coef?cient of variation over the four years were used in
the analysis as indicators of ROA level and ROA variability,
respectively. Similar to Covin et al. (2006), we used ?rm-speci?c
control variables, such as ?rm age and size, to control for their
possible effect on ?rm’s growth and pro?tability. These measures
were also obtained from the Voittoþ database.
4. Results
The descriptive information of our key variables in the sample
is shown in Table 2. The median size of the respondent companies
was about two million euro in sales turnover and ten employees.
The largest companies had about 11 million euro turnover and 160
employees. The ages of the companies varied from three to more
than a hundred years, with an average of about 19 years.
The distributions of the combined entrepreneurial orientation
scale and also those of its two dimensions were normally
distributed with a mean value close to the midpoint of the scale.
The average risk-taking propensity was a bit lower than the mean
Table 1
Principal component loadings of the EO items.
Item Innovativeness
and
Proactiveness
Risk
Communality
Continuous renewal and
innovation are important
for our company
.81 .24 .71
We invest heavily in
developing new products,
services and business
practices
.81 .17 .68
In our company, new ideas
come up all the time
.79 .12 .64
We aim at being at the
forefront of development
in our business sector
.76 .22 .63
Lately we have launched
many new products/
services
.73 .14 .55
Our company often acts
before the competitors do
.63 .19 .43
In uncertain situations we
are not afraid to take
substantial risks
o.20 .82 .68
Bold action is necessary to
achieve our company’s
objectives
.32 .74 .64
We prefer the cautious line
of action even if some
opportunity might be lost
that way
À.20 À.70 .52
Eigenvalue 4.22 1.25
Cumulative % of variance 46.9 60.8
Principal Component Analysis with Varimax rotation. KMO measure of sampling
adequacy¼.846, Bartlett Chi Square¼.686 with 36 d.f., po.001, MSA for indivi-
dual items ranged from .73 to .93.
J. Soininen et al. / Int. J. Production Economics 140 (2012) 614–621 617
value of innovativeness and proactiveness. The median growth
percentages were around 10% over the last year and also as a ?ve-
year average. However the variation was large, ranging from 100%
decline over the last year to 487% increase. The overall level of
pro?tability in the sample was very good, as the average return on
assets was 19% last year and 16% over the past ?ve years. All the
pro?tability indicators were rather symmetrically distributed
around their mean, although there were a couple of small and
large outliers in the sample.
The hypotheses were tested using multiple linear regression
analysis and two-way analysis of variance. The basic assumptions
of ordinary least squares estimation were checked by analyzing the
residuals and tolerance values, and no violations were detected.
In order to test our ?rst hypothesis the following regression
equation is estimated:
Profitability
i
¼a
0
þb
1
ðLN_age
i
Þþb
2
ðLN_employees
i
Þþb
3
ðEO
i
Þþe
i
,
ð2Þ
where Pro?tability
i
denotes the pro?tability measure (Pro?tabil-
ity
1
: 1 year return on assets, Pro?tability
2
: 5 year average return
on assets. Terms LN_age
i
and LN_employees
i
are the natural
logarithms of ?rm age and number of employees used as a
control variables and EO
i
represents the level of ?rm’s entrepre-
neurial orientation. The results for our ?rst hypothesis regarding
the effect of EO on pro?tability are in Table 3. While the linear
regression model for the average pro?tability indicator is statis-
tically signi?cant at the 5% level, the coef?cients of determination
is only 5%, implying a poor ?t. Furthermore, only the control
variables age and size have signi?cant effects. Older ?rms have
lower pro?tability, and the return on assets is lower in larger
companies. In sum, hypothesis H1 fails to receive any support
from our empirical data.
In order to examine the effects of entrepreneurial orientation
on growth the following regression equation is estimated:
Growth
i
¼a
0
þb
1
ðLN_age
i
Þ þb
2
ðLN_employees
i
Þþb
3
ðEO
i
Þþe
i
, ð3Þ
where Growth
i
denotes the growth measure (Growth
1
: 1 year
growth %, Growth
2
: 5 year growth %, Growth
3
: growth orienta-
tion). Terms LN_age
i
and LN_employees
i
are the natural logarithms
of ?rm age and number of employees used as a control variables
and EO
i
represents the level of ?rm’s entrepreneurial orientation.
Results of the regressions are reported in Table 4.
The model ?t statistics indicate that all the models are
statistically signi?cant, R squares ranging from 7% for one-year
growth to 23% for growth orientation. Entrepreneurial orientation
has a strong positive effect on future growth aspirations and also
a weaker positive, statistically signi?cant effect on actual growth
in the past ?ve years. Thus our hypothesis H2 is supported. It is
also interesting to note the different effects of age and size: while
age has a negative effect on actual growth, size in turn is only a
positive determinant of growth orientation in the future. We also
tested the ?ve year employee growth rate in our model as an
indicator for growth, but the results were insigni?cant and the
model ?t was very low.
Table 2
Descriptive statistics.
N Mean Median Std. Deviation Minimum Maximum
Sales (1000h) 193 2740.39 1969.00 2049.83 .00 10,803.40
Employees 160 17.11 10.00 19.86 1 159
Firm age 192 18.98 17.00 11.98 3.00 106.00
Innovativeness–Proactiveness 192 3.49 3.50 .79 1.17 5.00
Risk taking 192 2.95 3.00 .83 1.00 4.67
EO combined 192 3.31 3.44 .69 1.44 4.89
Growth orientation 193 3.53 3.67 .87 1.00 5.00
Growth 1 year 190 .16 .11 .46 À1.00 4.87
Growth 5 years average 192 .24 .10 .87 À.30 10.81
ROA 1 year 193 .19 .15 .13 À.16 .69
ROA 5 years average 192 .16 .15 .19 À1.95 .61
RO-04 170 .15 .16 .21 À1.37 .80
ROA-05 178 .18 .14 .18 À.22 1.06
ROA-06 186 .19 .16 .17 À.18 1.05
ROA-07 191 .22 .18 .14 .03 .74
ROA mean 04–07 191 .19 .16 .13 À.13 .64
ROA std. deviation 04–07 186 .01 .07 .10 .00 .91
ROA coef?cient of variation 04–07 186 1.08 .47 3.75 .01 44.82
Table 3
Linear regression results, pro?tability as the dependent variable.
ROA ROA 5 year average
b t b t
(Constant) .35
nnn
4.56 .30
nnn
4.73
LN_age À.03
n
À1.77 À.028
n
À1.94
LN_employees À.02
n
À1.76 À.02
nn
À2.23
EO À.01 À.52 À.00 À.09
Model ?t R square F R square F
.04 2.14
n
.05 2.84
nn
nnn
po0.01.
nn
po0.05.
n
po0.1.
Table 4
Linear regression results, growth as the dependent variable.
Growth % 1 year Growth % 5 years
average
GO
b t b t b t
(Constant) .26 1.45 .135 1.14 1.31
nnn
2.89
LN_age À.11
nnn
À2.74 À.07
nn
À2.49 .03 .27
LN_employees .03 1.38 À.03 À1.45 .14
nn
2.20
EO .04 .99 .08
nnn
3.32 .54
nnn
5.94
Model ?t R square F R square F R square F
.07 3.90
nnn
.11 6.47
nnn
.230 15.02
nn
nnn
po0.01.
nn
po0.05.
n
po0.1.
J. Soininen et al. / Int. J. Production Economics 140 (2012) 614–621 618
The third hypothesis was tested with two-way analysis of
variance using the general linear model procedure, see Table 5.
The average level of ROA over past four years was the ?rst factor
in the analysis, and it was recorded into four levels. The second
factor was the coef?cient of variation over the same four year
time period, and it also had four levels.
The results indicate that both factors have statistically sig-
ni?cant main effects, and also a signi?cant interaction, together
explaining 13.4% of the variance. The main effects indicate that
the risk taking is highest among those ?rms which have the
highest pro?tability, and the risk taking is also highest in the
group where the ROA variation is the highest. Since, the interac-
tion term (ROA level ÂROA variation) is signi?cant we cannot
draw more conclusion based on the main effects, rather we have
to focus on the interaction effect. The nature of the interaction
effect is illustrated in Fig. 1.
First of all, the level of ROA seems to have a nonlinear almost
an inverse U-shaped relationship with risk taking as the highest
levels of risk taking are observed in the medium pro?tability
categories. Secondly, the relationship between the risk taking and
pro?tability is remarkably different when there is more year-to-
year variation in ROA, i.e. ?rm is riskier measured by accounting
?gures. In this group the relationship is U-shaped, meaning that
the levels of strategic risk taking are at the highest in the
categories of the most and the least pro?table ?rms. The level
of risk taking is remarkably high in the category of the most
pro?table ?rms. This implies that there is a positive relationship
between risk and pro?tability, as the ?nance theory postulates.
Also, if we ignore the category of the least pro?table ?rms the
level of risk taking is increasing when the pro?tability is increas-
ing this ?nding is also con?rming the positive relationship
between risk and pro?tability. Thus, our H3 is supported by the
empirical ?ndings.
5. Conclusion
Entrepreneurial orientation capturing such characteristics as
innovativeness, risk-taking and proactivity has become a very
popular concept that has received substantial conceptual
and empirical attention in modern entrepreneurship research. In
our view, EO also builds a bridge between empirical entrepre-
neurial research and modern strategic management, since one
can also regard EO as an operationalization of the main char-
acteristics of dynamic capabilities of the ?rm, such as sensing
weak signals and seizing the opportunities by investments (Teece,
2007). Highly importantly, our paper further relates strategic
management scienti?c area to the area of ?nance by discovering
a relationship between strategic risk taking and levels of ?nancial
pro?tability. From this perspective, it is natural to assume that EO
is able to capture some important aspects from entrepreneurial
behavior thus having a positive in?uence on ?rm pro?tability and
growth rate as well. These relationships have been widely
recognized in many empirical studies. Some researchers even
think that the EO is a key ingredient for ?rm success. In our
empirical study we focused on entrepreneurial orientation in
order to analyze to what extent it in?uences on ?rms’ growth
rate and to the level and variability of pro?tability in the context
of Finnish SMEs. Our approach to the EO–performance relation
differs from the prior EO literature in one important aspect, since
we separately assessed the in?uence of EO on pro?tability and on
growth. Moreover, we relate EO as internal risk measure to
measure realized level and variation of ?rm pro?tability. The
rationale behind this reasoning is the fact that when one is
measuring growth and pro?tability from the ?rm’s ?nancial
statements, one can easily note that these two dimensions can
be contradictory as well. Hence, a new approach is needed.
Moreover, these dimensions of performance are analyzed sepa-
rately to be able to conclude if risk taken, measured as EO, is
resulting SMEs to provide higher returns for investors.
Our ?rst hypothesis links entrepreneurial orientation with
pro?tability. In this case, our results do not support the assump-
tion that entrepreneurial orientation is positively related to
pro?tability of small ?rms. In our empirical ?ndings EO did not
have signi?cant effect on any of our three pro?tability measures.
Therefore, our results are inconsistent with the results of prior
literature supporting EO as affecting positively the ?rm pro?t-
ability (e.g. Kemelgor, 2002). When testing the ?rst hypothesis,
we used only pro?tability ?gures based on archival data whereas
in prior literature performance indicator has typically been a
combination of pro?tability, growth, and other performance
related measures, both subjective and objective (Zahra and
Covin, 1995; Lumpkin and Dess, 1996; Wang, 2008).
The empirical ?ndings of this study support our second hypoth-
esis, which stated that there is a positive relationship between
the entrepreneurial orientation of the ?rm and the ?rm’s rate of
growth. Our results revealed that EO has a strong and signi?cant
effect on the ?rm’s growth orientation. Very importantly, our study
Table 5
GLM results, risk taking as the dependent variable.
Source Type III
SS
Estimate t F Sig. Partial eta
squared
Corrected
model
16.93 1.74 .05 .13
Intercept 500.87 774.11 o.00 .82
ROA level 8.39 4.32 .01 .07
o5 À1.17 À2.25 .03 .03
5–15 À1.56 À2.96 o.00 .05
15–30 À1.41 À2.55 .01 .04
430 n.a.
ROA variation 5.82 3.00 .03 .05
o.20 À1.34 À2.56 .01 .04
.20–.50 À1.50 À2.89 o.00 .05
.50–1 À.89 À1.51 .13 .01
41 n.a.
ROA
level ÂROA
variation
14.11 2.42 .01 .11
Error 109.35 169 .65
Total 1727.90 185
Corrected
total
126.27 184
0.0
1.0
2.0
3.0
4.0
5.0
30
Return on Assets, level
E
s
t
i
m
a
t
e
d
M
a
r
g
i
n
a
l
M
e
a
n
s
o
f
R
i
s
k
t
a
k
i
n
g
Fig. 1. Relationship between risk taking and pro?tability.
J. Soininen et al. / Int. J. Production Economics 140 (2012) 614–621 619
also shows that there exists a signi?cant and positive effect on
actual sales growth rate of the past ?ve years. Our results hence
give support to the anticipation that entrepreneurial orientation is
fundamentally pursuing actual growth for ?rms. When thinking
about the ability to overcome recession this result tells us that the
more there are SME’s with strong entrepreneurial orientation
characteristics the better are the chances to get out of the downturn
and vice versa.
In light of our results, one could reason that the positive
relationship between EO and ?rm performance, found in prior
literature, is primarily caused by the growth factor. From
the ‘‘how to overcome recession’’ perspective relevant in this
article this result implies that it is more important to promote the
rapid, employment enhancing growth of the SMEs than to
improve their pro?tability. This ‘‘Keynesian view’’ should be
taken seriously when the government is creating incentives for
the SMEs during the recession. However, in the longer run,
the government should, of course, create incentives for the
pro?table growth by promoting entrepreneurship that makes it
possible to achieve and sustain competitive advantage. From this
longer run perspective our results indicate that the weak results
with respect to EO&pro?tability are mainly driven by risk
involved during the recession. This relationship is tested in the
third hypothesis.
As for our third hypothesis, the empirical results obtained
provide very interesting results concerning the EO dimensions and
?rm risk. Our results show that the ?rm’s risk-taking orientation is
signi?cantly positively related to higher variability in pro?tability.
Moreover, the interaction of risk taking and pro?tability indicates
that the ?rms with higher risk-taking pro?le end up to the higher
level of actual measured pro?tability. This in turn indicates that
risk-taking orientation of ?rms actually generates higher pro?t-
ability for ?rms as well. This ?nding signi?cantly also indicates
that for the SMEs the CAPM relation holds. To conclude, the results
of this paper indicate that political decision makers responsible for
economic policy should seriously consider how to create stronger
incentives to support SMEs that conduct growth actions with high
entrepreneurial orientation characteristics.
Nonetheless, our research does have some limitations. First,
the models used in this research are somewhat simple, we believe
it may be important to consider additional variables, such as
those related to the industry and to the ?rm’s ?nancial resources,
to be better able to capture the relationship between the EO and
the various dimensions of performance. Secondly, a longitudinal
design – rather than the current cross-sectional design – would
give us a better premiss to explore the causal relationships among
the research variables. Repeating our survey in the future will
mitigate this problem.
Future research on the construct of EO might lead us to
explore the relationship between the EO and how severe global
economic conditions, such as the latest economic crisis, are
affecting SMEs at the operational level, e.g. weather they have
to lay off employees or delay investments, etc.
References
Armstrong, J.S., Overton, T.S., 1977. Estimating nonresponse bias in mail surveys.
Journal of Marketing Research 14, 396–402.
Avlonitis, G.J., Salavou, H.E., 2007. Entrepreneurial orientation of SMEs, product
innovativeness, and performance. Journal of Business Research 60, 566–575.
Baird, I.S., Thomas, H., 1985. Toward a contingency model of strategic risk taking.
Academy of Management Review 10 (2), 230–243.
Bhuian, S.N., Menguc, B., Bell, S.J., 2005. Just entrepreneurial enough: the
moderating effect of entrepreneurship on the relationship between market
orientation and performance. Journal of Business Research 58, 9–17.
Black, F., Jensen, J.C., Scholes, M.S., 1972. The capital asset pricing model: some
empirical tests. In: Jensen, M.C. (Ed.), Studies in the Theory of Capital Markets.
Praeger, New York, pp. 79–121.
Bromilley, P., 1991. Testing a causal model of corporate risk taking and perfor-
mance. Academy of Management Journal 34 (1), 37–59.
Bullinger, H., 1999. Turbulent times require creative thinking: new European
concepts in production management. International Journal of Production
Economics 60–61, 9–27.
Carree, M.A., Thurik, A.R., 1998. Small ?rms and economic growth in Europe.
Atlantic Economic Journal 26 (2), 137–146.
Covin, J.G., Slevin, D.P., 1989. Strategic management of small ?rms in hostile and
benign environments. Strategic Management Journal 10 (1), 75–87.
Covin, J.G., Slevin, D.P., 1990. New venture strategic posture, structure, and
performance: an industry life cycle analysis. Journal of Business Venturing
5 (2), 123–135.
Covin, J.G., Green, K.M., Slevin, D.P., 2006. Strategic process effects on the
entrepreneurial orientation–sales growth rate relationship. Entrepreneurship
Theory and Practice 30 (1), 57–81.
Dimitratos, P., Lioukas, S., Carter, S., 2004. The relationship between entrepreneur-
ship and international performance: the importance of domestic environment.
International Business Review 13, 19–21.
Fama, E.F., Macbeth, J., 1973. Risk, return and equilibrium: some empirical tests.
Journal of Political Economy 81 (3), 607–636.
Fiegenbaum, A., Thomas, H., 1986. Dynamic and risk measurement. Perspectives
on Bowman’s risk-return paradox for strategic management: an empirical
study. Strategic Management Journal 7, 395–407.
George, G., Wood Jr., D.R., Khan, R., 2001. Networking strategy of boards:
implications for small and medium-sized enterprises. Entrepreneurship and
Regional Development 13 (3), 269–285.
Jantunen, A., Puumalainen, K., Saarenketo, S., Kyl ¨ aheiko, K., 2005. Entrepreneurial
orientation, dynamic capabilities and international performance. Journal of
International Entrepreneurship 3 (3), 223–243.
Karpak, B., Topcu, I., 2010. Small medium manufacturing enterprises in Turkey: an
analytic network process framework for prioritizing factors affecting success.
International Journal of Production Economics 125, 60–70.
Keh, H.T., Nguyen, T.T.M., Ng, H.P., 2007. The effects of entrepreneurial orientation
and marketing information on the performance of SMEs. Journal of Business
Venturing 22, 592–611.
Kemelgor, B.H., 2002. A comparative analysis of corporate entrepreneurial orien-
tation between selected ?rms in the Netherlands and the USA. Entrepreneur-
ship and Regional Development 14 (1), 67–87.
Leo´ n, A., Nave, J., Rubio, G., M., 2007. The relationship between risk and expected
return in Europe. Journal of Banking & Finance 31, 495–512.
Lintner, J., 1965. The valuation of risk assets and selection of risky investments
in stock portfolios and capital budgets. Review of Economics and Statistics
47, 13–37.
Lumpkin, G.T., Dess, G.G., 1996. Clarifying the entrepreneurial orientation con-
struct and linking it performance. Academy of Management Review 21 (1),
135–172.
Lumpkin, G.T., Dess, G.G., 2001. Linking two dimensions of entrepreneurial
orientation to ?rm performance. Journal of Business Venturing 16, 429–451.
Lusk, W.J., Halperin, M., Bern, M., 2008. Towards reformulation of the capital asset
pricing model (CAPM) focusing on idiosyncratic risk and Roll’s meta-analysis:
methodological approach. Journal of Financial Management and Analysis
21 (1), 1–23.
Madsen, E.L., 2007. The signi?cance of sustained entrepreneurial orientation on
performance of ?rms—a longitudinal analysis. Entrepreneurship & Regional
Development 19, 185–204.
Miller, D., 1983. The correlates of entrepreneurship in three types of ?rms.
Management Science 29 (7), 770–791.
Mintzberg, H., 1973. Strategy-making in three modes. California Management
Review 16 (2), 44–53.
Moreno, A.M., Casillas, J.C., 2008. Entrepreneurial orientation and growth of SMEs:
a causal model. Entrepreneurship Theory and Practice 32 (2), 507–528.
Nickel, M.N., Rodriguez, M.C., 2002. A review of research on the negative
accounting relationship between risk and return: Bowman’s paradox. Omega
30, 1–18.
Paul, S., Whittam, G., Wyper, J., 2007. The pecking order hypothesis: does it apply
to start-up ?rms? Journal of Small Business and Enterprise Development
14 (1), 8–21.
Rauch, A., Wiklund, J., Lumpkin, G.T., Frese, M., 2009. Entrepreneurial orientation
and business performance: an assessment of past research and suggestions for
the future. Entrepreneurship Theory and Practice 33 (3), 761–778.
Runyan, R., Droge, C., Swinney, J., 2008. Entrepreneurial orientation versus small
business orientation: What are their relationships to ?rm performance?
Journal of Small Business Management 46 (4), 567–588.
Sharpe, W.F., 1964. Capital asset prices: a theory of market equilibrium under
conditions of risk. Journal of Finance 19, 425–442.
Smart, D.T., Conant, J.S., 1994. Entrepreneurial orientation, distinctive marketing
competencies and organizational performance. Journal of Applied Business
Research 10, 28–38.
Stewart, W.H., Roth, P.L., 2001. Risk propensity differences between entrepreneurs
and managers: a meta-analytic review. Journal of Applied Psychology 86 (1),
145–153.
Teece, D.J., 2007. Explicating dynamic capabilities. The nature and microfounda-
tions of sustainable enterprise performance. Strategic Management Journal
28, 1319–1350.
Wang, C.L., 2008. Entrepreneurial orientation, learning orientation, and ?rm
performance. Entrepreneurship Theory and Practice 34 (3), 635–657.
J. Soininen et al. / Int. J. Production Economics 140 (2012) 614–621 620
Wiklund, J., 1999. The sustainability of the entrepreneurial orientation–
performance relationship. Entrepreneurship Theory and Practice 24 (1),
37–48.
Wiklund, J., Shepherd, D., 2003. Knowledge-base resources, entrepreneurial
orientation, and the performance of small and medium-sized businesses.
Strategic Management Journal 24 (12), 1307–1314.
Wiklund, J., Shepherd, D., 2005. Entrepreneurial orientation and small business
performance: a con?gurational approach. Journal of Business Venturing 20
71–91
Zahra, S.A., Covin, J.G., 1995. Contextual in?uences on the corporate
entrepreneurship–performance relationship: a longitudinal analysis. Journal
of Business Venturing 10, 43–58.
J. Soininen et al. / Int. J. Production Economics 140 (2012) 614–621 621
ARTICLE II
Soininen, J ., Puumalainen, K., Sjögrén, H. and Syrjä, P. (2012).
THE IMPACT OF GLOBAL ECONOMIC CRISIS ON SMES – DOES
ENTREPRENEURIAL ORIENTATION MATTER?
Management Research Review, 35 (10), 927-944.
Copyright © Emerald Group Publishing Ltd. Reproduced with permission.
F
o
r
P
e
e
r
R
e
v
i
e
w
The impact of global economic crisis on SMEs – does
entrepreneurial orientation matter?
Journal: Management Research Review
Manuscript ID: MRR-Jun-2011-0133.R2
Manuscript Type: Original Article
Keywords: Small business, Entrepreneurial orientation, Recession, Performance
http://mc.manuscriptcentral.com/mrr
Management Research Review
F
o
r
P
e
e
r
R
e
v
i
e
w
1
The impact of global economic crisis on SMEs – does entrepreneurial orientation
matter?
1. Introduction
Between late 2007 and the second quarter of 2009, the global economy slid into a severe
economic crisis (Naidoo, 2010). This global economic crisis has not only been severe for
large enterprises, but also for small and medium-sized enterprises (SMEs), which have
become an increasingly important component of economic development (Paul, Whittam &
Wyper, 2007).The international financial crisis caused an economic downturn in Finland, too.
For instance, since the last quarter of 2008 the number of layoffs, order cancellations and
financial difficulties has increased drastically, which has led among others to a 30 per cent
increase in the number of bankruptcies among the Finnish SMEs. This recent sudden and
extraordinary decline has shown how turbulent and vulnerable the international and also the
national business environment can nowadays be. Theory and empirical evidence suggest that
major economic crises have profound effects on firms, but the effects are uneven between
firms (Narjoko & Hill, 2007). In this framework it is essential to further investigate if there
are some firm-specific strategic factors that enable SMEs to better survive such challenging
changes in the surrounding environment. For decades economic recessions and firms in
these harsh environments have offered researchers a fruitful setting. A sizeable body of
literature called the turnaround strategy literature (e.g. Pearce II & Robbins, 1994; Laitinen,
2000; Cater & Schwab, 2008; Naidoo, 2010) has focused on the strategies used by firms to
survive and meet the performance targets during recessionary periods. Some of these
turnaround strategies resemble very closely the dimensions of the entrepreneurial orientation,
and we are therefore interested to see if the entrepreneurial orientation has a positive effect on
firms struggling to survive the recession.
During the last few decades, entrepreneurial orientation (EO) has emerged as a major
construct within the strategic management and entrepreneurship literature. Covin, Green &
Slevin (2006) define EO as a strategic construct whose conceptual domain includes certain
firm-level outcomes and management-related preferences, beliefs, and behaviors as expressed
among a firm’s top-level managers. Runyan, Droge & Swinney (2008) argue that EO is
evidenced through visible entrepreneurial tendencies toward innovativeness, proactiveness
and risk taking. Miller (1983) and later on Covin & Slevin (1989) operationalized these
constructs and see them as central to EO. According to Rauch et al. (2009) these dimensions
of EO can be defined as follows: Innovativeness represents creativity and experimentation
through the introduction of new products/services as well as technological leadership via
R&D in new processes. Risk taking describes the nature of easily venturing into the unknown,
borrowing heavily, and/or committing remarkable resources to ventures in uncertain
environments. Proactiveness is an opportunity-seeking, forward-looking perspective
characterized by the introduction of new products and services ahead of competition and
acting in anticipation of the future demand.
In recent years there has been an increased focus on the relationship between a firm’s
strategic orientation and firm performance (Madsen, 2007). Earlier studies have generally
found a positive relationship between EO and firm performance (Madsen, 2007; Wiklund &
Shepherd, 2005; Jantunen et al, 2005). However, there are also studies where no such
relationship has been found (Smart & Conant, 1994). Typically, the measure that has been
used to assess firm performance has been a combination of both profitability measures and
growth measures (Avlonitis & Salavou, 2007; Wiklund, 1999; Covin & Slevin, 1989). There
are also a few studies that have merely explored the relationship between EO and firm growth
Page 1 of 19http://mc.manuscriptcentral.com/mrr
Management Research Review
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
F
o
r
P
e
e
r
R
e
v
i
e
w
2
(Moreno & Casillas, 2008; Covin, Green & Slevin, 2006). The findings of these studies have
confirmed that there is a positive relationship between EO and the firm’s rate of growth.
The purpose of this study is to ascertain if EO can mitigate the negative effects of
economic crisis both on firm’s operations and on firm’s financial performance. This study
contributes to the EO literature in two ways: first, as far as we know, this is the first work to
link EO with the effects of recession at the firm’s operational level. Secondly, as discussed in
the paragraph above, the relationship between EO and performance is well known, but we
expand this knowledge by taking the EO-performance relationship into the context of
recession.
The article is structured as follows: After the introductory section is a section that
defines the concept, reviews the relevant literature and presents the research hypotheses.
Then comes a description of the methodology used in empirical research. In the following
section, the main findings are presented. Finally, section five summarizes the results along
with their implications.
2. Theoretical Framework and Hypotheses
A substantial amount of research has examined the concept of entrepreneurial orientation
(EO) thus it has become a central concept in the domain of entrepreneurship (Covin, Green &
Slevin, 2006). Rauch et al. (2009) point out in their meta-analysis that more than 100 studies
dealing with EO have been conducted, which has led to a wide acceptance of the conceptual
meaning and relevance of the concept.
The Dimensions of EO
Miller (1983) conceptualized the three focal dimensions of EO as innovativeness, risk
taking and proactiveness and these three dimensions have since been used consistently in the
literature (Dimitratos et al., 2004; Kemelgor, 2002). Lumpkin and Dess (1996) describe
innovativeness as follows: Innovativeness reflects a firm’s tendency to engage in and support
new ideas, novelty, experimentation, and creative processes that may result in new products,
services, or technological processes. Innovativeness represents a basic willingness to depart
from existing technologies or practices and venture beyond the current state of the art.
Lumpkin and Dess (1996) see innovativeness as an important component of an EO, because
it reflects an important means by which firms pursue new opportunities. According to Baird
and Thomas (1985) there are three different types of strategic risk taking, such as venturing
into the unknown, heavy borrowing, and/or committing large portions of corporate assets in
uncertain environments. Similarly, Lumpkin and Dess (1996) state that firms with an
entrepreneurial orientation are often typified by risk-taking behavior, such as incurring heavy
debts or making significant resource commitments in the interests of obtaining high returns
by seizing opportunities in the marketplace. Rauch et al., (2009) describe proactiveness as an
opportunity-seeking, forward-looking perspective characterized by the introduction of new
services and products ahead of the competition and acting in anticipation of future demand.
Besides these three most commonly used dimensions Lumpkin and Dess (1996) argue
that two additional dimensions, competitive aggressiveness and autonomy, are also salient
components of EO. Lumpkin and Dess (2001) define these two additional dimensions as
follows: Competitive aggressiveness is said to reflect the intensity of a firm’s effort to
outperform industry rivals, characterized by a strong offensive posture and a forceful
response to competitor’s actions. Autonomy is independent action by an individual or team
aimed at bringing forth a business concept or vision and carrying it through to completion.
The usage of the EO model with all the aforementioned five dimensions has been rare in
the EO literature when compared with the use of the model with three dimensions. Rauch et
al. (2009) show in their meta-analysis that only in one study (George et al., 2001) has been
Page 2 of 19http://mc.manuscriptcentral.com/mrr
Management Research Review
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
F
o
r
P
e
e
r
R
e
v
i
e
w
3
used all these five dimensions. Whereas, in 29 studies (e.g. Covin, Prescott & Slevin, 1990;
Covin et al., 1994; Slater & Narver, 2000; Bhuian et al., 2003; Wiklund & Shepherd 2003)
have been used these same three dimension as we are using in our study.
Rauch et al. (2009) state that the focal dimensions of EO are usually highly
intercorrelated with each other, which leads to combining these dimensions into one single
factor. In the EO literature there is no solid consensus on the dimensionality of the EO
construct. On the one hand, scholars such as Covin & Slevin (1989) argue that the EO
construct is best viewed as a unidimensional concept and on the other hand, for example,
Lumpkin and Dess (2001) suggest that the dimensions of EO may relate differently to firm
performance. In this study we use the latter approach, allowing the dimensions of EO to have
different effects on the firm’s operations and financial performance during economic
downturn.
The EO-Performance Relationship
The modern business environment is one in which the pace of change is fast and product
and business model lifecycles are shortened, the future profit streams from existing
operations are uncertain and businesses need to constantly seek out new opportunities.
Therefore firms may benefit from adopting an EO (Rauch et al., 2009). Wiklund (1999)
relates the positive influence of EO on performance to the first-mover advantages and the
tendency to take advantage of emerging opportunities implied by EO. Zahra and Covin
(1995) argue that firms with EO can “skim” the markets ahead of their competitors by
targeting premium market segments and charging high prices. Wiklund (1999) points out that
these firms monitor market changes and respond rapidly, thus capitalizing on emerging
opportunities. Innovation keeps them ahead of their competitors, gaining a competitive
advantage that leads to improved financial results. Proactiveness gives firms the capability to
present new products or services to the market before their competitors, which also gives
them a competitive advantage. Furthermore, Wiklund (1999) also states that there is a reason
to believe that the relation between EO and performance may be especially strong in the
context of small firms. Most likely, smallness per se enhances flexibility and innovation but
limits competitiveness in other strategic dimensions.
Moreno and Casillas (2008) point out that the fairly extensive body of literature on the
relationship between EO and firm performance is dominated by two types of work. Firstly,
there are studies that present general models describing the characteristic of the said
relationship, identifying the moderating and mediating variables and striving to establish
wide-ranging propositions (Stam & Elfring, 2008; Marino et al., 2002; Covin & Slevin,
1991). Secondly, as Moreno and Casillas (2008) note, a wide range of studies have attempted
to empirically verify partial models of said relation. This field of research contains, in an
isolated and independent manner, some of moderating variables, those related either to
environment (Tan & Tan, 2005) or to the firm’s internal dimensions (Wang, 2008).
Several empirical studies have found that firms with high EO perform better than firms
with low EO, for example Keh, Ngyuen & Hg (2007) found that EO plays an important role
in enhancing firm performance. Similarly, Wiklund and Shepherd (2003) found a strong
correlation between EO and performance, whereas Wiklund (1999) showed that investments
in EO may be worthwhile for small firms since there is a positive relationship between EO
and performance and the relationship actually increases over time. On the other hand, some
studies have shown that the relationship between EO and performance is not so
straightforward. Bhuian et al. (2005) found that entrepreneurship is one of the key elements
in organizational success, but the relationship is shaped like an inverted U, meaning that a
high degree of entrepreneurship is not always desirable in certain market and structural
conditions. Similarly, Tang et al. (2008) found a curvilinear relationship between EO and
Page 3 of 19http://mc.manuscriptcentral.com/mrr
Management Research Review
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
F
o
r
P
e
e
r
R
e
v
i
e
w
4
firm performance in Chinese firms, implying that blindly striving to pursue as high EO as
possible may under some conditions lead to adverse outcomes. Besides the relationship
between EO and financial performance some studies have found that EO also has a positive
influence on new product development, product innovativeness, and number of patents
(Avlonitis & Salavou, 2007; Friskhammar & Hörte, 2007; Kemelgor, 2002).
The literature shows that the variety of measures that have been used to assess firm
performance has been fairly diverse. Several studies (Runyan, Droge & Swinney, 2008;
Madsen, 2007; Lumpkin & Dess, 2001; Wiklund & Shepherd, 2003) have used perceived
performance indicators to assess firm performance. The items used to form the performance
indicator were typically based on the manager’s subjective views about the firm’s
profitability, growth, market share in relation to its main competitors. On the other hand,
some studies (Covin, Green & Slevin, 2006; Zahra & Garvis, 2000) have utilized secondary
data to capture both the growth and profitability dimension of company financial
performance. For example, Zahra & Covin (1995) combined measures of return on assets
(ROA), return on sales (ROS) and growth into a single performance indicator. Non-financial
data can also be used in entrepreneurship research to assess the perceptions of the SME’s
management regarding the performance of the firm because of a strong correlation between
financial and non-financial data (Covin, 1991). However, this kind of an approach has been
used somewhat infrequently in the literature (Rauch et al., 2009). One common factor for the
performance indicators based either on perceived data or secondary data is the fact that in
both cases the indicator contains growth measures and profitability measures. According to
Moreno and Casillas (2008) such an approach may not be the most suitable because growth
dimension and profitability dimension are sometimes contradictory and should therefore not
be combined into one single indicator.
As mentioned earlier, Lumpkin and Dess (2001) suggest that the dimensions of EO may
relate differently to firm performance. Therefore, in the context of the recession, we
hypothesize as follows:
H1a: The more innovative and proactive firm is, the less its financial
performance will be affected by the crisis
H1b: The more risk-taking firm is, the more its financial performance will be
affected by the crisis.
Turnaround Strategies
Carter and Schwab (2008) define turnaround strategies as a set of consequential,
directive long-term decisions and actions targeted at the reversal of a perceived crisis that
threatens the firm’s survival. Moreover, Laitinen (2000) carries the definition further as
defining a turnaround strategy as a strategy that companies apply when responding to
uncertainty and changes in the environment and attempting to turn threats into opportunities
during a deep recession.
Pearce II & Robbins (1994) argue that firms in economic distress may undertake
recovery implementing recovery strategies, which are identified as primarily entrepreneurial-
oriented, primarily efficiency-oriented, or a combination of both. Pearce II & Robbins (1994)
characterize the difference between these two strategies as follows: Entrepreneurial recovery
strategies involve actions to “do things differently” whereas efficiency recovery strategies
entail actions designed to “do basically the same things on a smaller, more efficient scale”.
These entrepreneurial recovery strategies come close to the innovation dimension of EO,
since they involve reformulations of firm’s products, services, markets, or principal
technologies in ways that represent a new or radically altered competitive posture. The
findings of Pearce II & Robbins indicate that firms that experienced external cause downturns
Page 4 of 19http://mc.manuscriptcentral.com/mrr
Management Research Review
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
F
o
r
P
e
e
r
R
e
v
i
e
w
5
were more successful in their turnaround efforts when they emphasized entrepreneurial
activities in the recovery response. Furthermore, Pearce II & Michael (2006) also show that
innovative firms which introduce new products especially during a recession can be very
successful.
Features similar to the proactiveness component of the EO have also been beneficial for
companies struggling with unfavorable economic conditions. Laitinen (2000) notes that
companies that have been in decline have managed a sharp and sustained recovery by
constantly monitoring their environment, seeking opportunities and making improvements.
Therefore, we hypothesize the following:
H2a: The more innovative and proactive firm is, the less its operations will be
affected by the crisis.
The risk taking component of EO is characterized by committing a large amount of
resources to uncertain ventures and borrowing heavily. In uncertain and recessionary periods
such behavior may be detrimental to the companies. Geroski & Gregg (1996) studied the
effects of recession on firms in the UK. They showed that firms which were extremely
severely affected by the recession were firms which had higher ratios of debt to assets than
firms which were less severely affected by the recession. Similarly, Ofek (1993) showed that
highly-leveraged firms responded faster than their less-leveraged counterparts to financial
distress. The highly-leveraged firms took actions such as laying off employees and cutting
dividends. Keeping the heavy borrowing nature of the risk taking component in mind, we
hypothesize the following:
H2b: The more risk-taking firm is, the more its operations will be affected by
a crisis.
3. Research Method
Sample and Data Collection
The empirical data used to test the hypotheses were drawn from a mail survey conducted
in spring 2009 by means of a structured questionnaire. The initial population consisted of
Finnish small private limited companies (they typically have few shareholders and are usually
owner-managed family businesses) with a sales turnover between one and 10 million Euros.
Hypotheses were tested in a multiple industry setting, because of a greater generalizability. A
total of 13,495 firms were identified from the Voitto+- database, and a systematic random
sample of 1,026 firms was drawn. The pre-tested survey questionnaire with an introductory
cover letter was mailed to the respondents, who were assured of confidentiality and promised
a summary of the results. A reminder was sent to those who had not responded within two
weeks. Final responses were received from 194 companies, yielding a satisfactory effective
response rate of 18.9 percent (194/1,026). It was possible to obtain financial information
about the companies via Voitto+ database, a commercial database containing financial
statements of over 82,000 Finnish firms. The financial measures used in this study are based
on the financial statements of 2009. Non-response bias was checked on a number of key
variables by comparing the early (first-round) respondents with the late respondents
(following the suggestions of Armstrong and Overton, 1977) and no significant differences
were found between these two groups.
Measures
Page 5 of 19http://mc.manuscriptcentral.com/mrr
Management Research Review
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
F
o
r
P
e
e
r
R
e
v
i
e
w
6
We utilize nine items to capture the three dimensions of EO conceptualized by Miller
(1983). The items are based on the work of Covin and Slevin (1990). However, they were
slightly adapted to fit better with the context of Finnish small enterprises. A principal
component analysis of the EO items (see Table 1) resulted in two components explaining
together 61% of the variance in the items. The items measuring innovativeness and
proactiveness merged into the first component, while risk-taking items loaded highly on the
second component. The internal consistency of the scales was good, as the Cronbach’s alpha
values were .865 for innovativeness/proactiveness and .671 for risk-taking respectively.
Table 1.
Principal Component Loadings of the EO Items
Item Innovativeness &
Proactiveness
Risk
taking
Communality
Continuous renewal and innovation are important for
our company (I)
.81 .24 .71
We invest heavily in developing new (I) products,
services and business practices.
.81 .17 .68
In our company, new ideas come up all the time. (I) .79 .12 .64
We aim at being at the forefront of development in our
business sector. (P)
.76 .22 .63
Lately we have launched many new products/
services.(I)
.73 .14 .55
Our company often acts before the competitors do.(P) .63 .19 .43
In uncertain situations we are not afraid to take
substantial risks.(R)
.20 .82 .68
Bold action is necessary to achieve our company’s
objectives. (R)
.32 .74 .64
We prefer the cautious line of action even if some
opportunity might be lost that way. (R, Reversed)
-.19 -.69 .52
Eigenvalue 4.22 1.25
Cum % of variance 46.90 60.80
Principal Component Analysis with Varimax rotation. KMO measure of sampling adequacy =.846, Bartlett Chi
Square= 686 with 36 d.f., p=.000, MSA for individual items ranged from .73 to .93. I= innovativeness, P=
proactiveness, R=risk taking
The items of different operations were adapted from scales used by Geroski and Gregg
(1993). They found that some firms were more severely affected by the recession than others.
They also identified the parts of operations which were most affected. Their survey contained
32 detailed questions. The questions were divided into three main sections: “the effects of the
recession”, “human resource management” and “company organization”. The aim was to
ascertain how severely the firms were affected by the recession; how much the recession
affected their trading position, pay arrangements, their workforce composition and their
potential for financing (credit limits by banks). In our questionnaire some of the original
items were omitted as they were not deemed suitable for small Finnish firms. The final
measure included 20 items all assessed on a five-point Likert scale with the anchors 1 =
totally disagree, 5 = totally agree, see Table 2 for exact item wordings and factor analysis
results.
In a principal component analysis we were able to identify six dimensions explaining 64
percent of total variance. The dimensions were 1) impact on sales and profitability (4 items),
2) impact on short-term financing (5 items), 3) impact on long-term financing (3 items), 4)
impact on personnel (2 items), 5) impact on the competitive situation (3 items) and 6) impact
on payment terms (3 items). We computed the mean score of items to represent each of the
Page 6 of 19http://mc.manuscriptcentral.com/mrr
Management Research Review
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
F
o
r
P
e
e
r
R
e
v
i
e
w
7
six dimensions, and additionally a total summed score of all 20 items to represent the
perceived total impact of the economic downturn.
Table 2.
Principal Component Loadings of the Effects of Economic Downturn
Item
Component
1 2 3 4 5 6
The downturn has decreased our sales .85 .11
The downturn has decreased our profitability .84 .15 .17
The crisis makes our operations harder overall .74 .23 .14 .16
Customers have canceled their orders .44 .30 .34 .22
We have not been able to pay dividends .77 .18 .11
We have cut down the principal owner’s salary .12 .66 .14 .22
It has been hard to get financing .12 .66 .41
Lack of financing jeopardizes our future .17 .64 .54
The crisis increases the risk of bankruptcy .40 .61 .34
We have canceled investments due to lack of financing .14 .25 .79 .17
We have delayed our investments .14 .14 .72 .30
Our interest margin has been raised .15 .60 -.23 .28
We have dismissed personnel .12 .82 .12
We have laid off personnel .23 .16 .79
We have outsourced our operations -.16 .31 .73
We’ve had to lower prices .38 -.13 .13 .70 .13
Competition has become more aggressive .26 .16 .58 .27
Our customers’ terms of payment have become longer .10 .84
Our credit losses have increased .18 .16 -.18 .73
Our suppliers have tightened their payment terms -.16 .13 .41 .12 .18 .46
Eigenvalue 5.04 2.49 1.75 1.34 1.10 1.06
Cum % of variance 25.19 37.65 46.42 53.11 58.63 63.93
Extraction Method: Principal Component Analysis, Rotation Method: Varimax with Kaiser Normalization,
Rotation converged in 9 iterations,
The measures for financial performance were obtained from the Amadeus database. We
included financial measures representing scale, liquidity, and profitability over the three-year
period from 2007 to 2009, which was the most recent year available for the majority of the
companies at the time of the study. The scale of the company was measured by the number of
employees, operating revenue in thousands of Euros, and total assets in thousands of Euros.
The liquidity measure was current ratio, and profitability measures included return on total
assets as a percentage, and profit margin percentage.
4. Results
The descriptive information of our key variables in the sample is shown in Table 3. The
average size of the respondent companies was about 2.3 million Euros in sales turnover and
Page 7 of 19http://mc.manuscriptcentral.com/mrr
Management Research Review
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
F
o
r
P
e
e
r
R
e
v
i
e
w
8
18 employees. The largest companies had about 13 million Euro turnover and 150
employees. The ages of the companies varied from three to more than a hundred years, with
an average of about 19 years.
The distributions of the two dimensions of entrepreneurial orientation were normally
distributed with a mean value close to the midpoint of the scale. The average risk taking
propensity was slightly lower than the mean value of innovativeness and proactiveness. The
perceived impacts of the economic downturn at the time of the study were highest in terms of
sales and profitability, followed by more aggressive competition and less favorable terms of
payment. On the other hand, the respondents did not report many impacts on their financing
opportunities or personnel. On average, the volume of the companies had increased from
2007 to 2008, but then decreased in 2009. The decrease was most dramatic in operating
revenues as its average value in 2009 was 22 percent lower than the 2008 average. The
number of employees and total assets decreased only 11 percent and 2.4 percent respectively.
The liquidity as measured by current ratio had increased throughout the three-year period.
Both the profitability ratios had decreased since 2007, and the drop from 2008 to 2009 was
greater than that from 2007 to 2008.
Table 3.
Descriptive Statistics
Variable N Minimum Maximum Mean Standard
Deviation
Firm age 192 4.00 107.00 12.00 11.98
Sales (1000 €) 192 242.00 10803.40 2045.50 2049.83
Innovativeness-proactiveness 192 1.17 5.00 3.50 .79
Risk-taking 192 1.00 4.67 2.95 .83
International sales (percent) 185 .00 100.00 10.39 23.52
Impact on sales and profits 193 1.00 5.00 3.36 .97
Impact on short-term financing 190 1.00 5.00 1.74 .85
Impact on long-term financing 189 1.00 5.00 1.91 .94
Impact on personnel 190 1.00 5.00 1.92 1.26
Impact on competition 193 1.00 5.00 2.87 .98
Impact on terms of payment 192 1.00 4.67 2.57 .90
Overall impact 190 21.00 81.00 47.85 11.91
Operating revenue 2009 (1000€) 177 .00 12759.00 2349.78 2025.50
Operating revenue 2008 (1000€) 182 18.00 21889.31 3018.75 2783.04
Operating revenue 2007(1000€) 178 486.16 12630.56 2701.30 2052.52
Number of employees 2009 138 1.00 150.00 17.98 20.91
Number of employees 2008 130 1.00 186.00 20.25 27.49
Number of employees 2007 152 1.00 159.00 16.74 19.93
Total assets 2009 (1000€) 177 85.00 82202.76 2062.00 6374.26
Total assets 2008 (1000€) 182 121.00 73841.60 2112.91 5745.74
Total asset 2007 (1000€) 178 204.00 14221.56 1597.69 2085.69
Current ratio 2009 177 .06 82.24 4.16 8.04
Current ratio 2008 182 .08 42.72 3.16 4.01
Current ratio 2007 178 .28 20.94 2.78 2.83
Return on total assets 2009
(percent)
176 -83.72 59.21 8.94 18.14
Return on total assets 2008
(percent)
182 -36.00 71.46 15.13 15.69
Return on total assets 2007
(percent)
178 -2.83 64.84 19.63 13.54
Profit margin 2009 (percent) 174 -33.86 66.20 5.38 11.26
Profit margin 2008 (percent) 181 -41.44 61.29 7.91 10.77
Profit margin 2007 (percent) 178 -2.97 72.94 10.45 9.88
Page 8 of 19http://mc.manuscriptcentral.com/mrr
Management Research Review
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
F
o
r
P
e
e
r
R
e
v
i
e
w
9
The first hypothesis concerned the effects of EO dimensions on financial performance.
The results of multiple linear regressions with financial performance indicators as dependent
variables are shown in Table 4. In these regression models we predict the financials of 2009
using the 2008 values as control variables and EO dimensions as independent variables. The
models for the two volume indicators (operating revenue and total assets) give very similar
results. The R squares are above .80, the lagged financial indicator has a positive coefficient
with a very large t-value, and the innovativeness/proactiveness dimension has a significant
positive effect while risk-taking is not significant. Thus the more innovative and proactive
firms suffered less in terms of operations volume. The liquidity and profitability models are
also significant but the R squares are somewhat lower than in the volume models. The
profitability and liquidity measures are largely dependent on the previous year’s values, but
to a notably lesser extent than the volume measures. Risk-taking has negative effects which
are significant or close to significance. This means that the more risk-taking a company is,
the more its liquidity and profitability decreased during the crisis.
In sum, H1a is partly supported as innovativeness/proactiveness has positive effects on
revenues and assets, but no effect on profitability or liquidity. H1b is partly supported as risk
taking has no effect on revenues or assets, but has negative effects on liquidity and
profitability.
Table 4
Regression Results for Financial Performance
Dependent variable: Operating revenue 2009 (thousand euros)
Independent
variables
Parameter estimate
b
Standard error
of b
t-value p-value
Constant -185.43 320.83 -.58 .56
Operating revenue
2008
.64*** .02 27.39