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Abstract
Many firms in the world consider entrepreneurial orientation as a crucial part of their success
and survival in todays hyper-competitive business environment, yet there is lack of studies on how
different entrepreneurial orientations abstractions exert influence on small firm performance in
the African context generally, and most especially in Nigeria where studies on SMEs are very
scarce particularly on the impacts of strategic orientations on performance. To address this clear
knowledge gap, the present study drew on resource-based view to investigate the effects of
innovativeness, proactiveness, and risk-taking on small firms financial performance using partial
least squares structural equation modeling. Therefore, 125 usable data were gathered from
randomly sampled small firms operating in Kano State, Nigeria. The statistical result revealed
that each of the aforesaid dimensions of entrepreneurial orientation significantly affect simple
firms financial performance independently. The study concluded that simple firms owner-
managers should therefore, consider implementing their business strategies based on such
entrepreneurial postures so as to achieve, sustain, and maximize their positions in both local and
international markets. At the end, the study opened up some avenues for future studies.
Introduction
1
. Mohammed Ibrahim Aminu is a student in School of Business Management, College of
Business, Universiti Utara Malaysia Sintok, Kedah, Malaysia
mianinuscholar@yahoo.com
Entrepreneurial Orientation and Financial Performance of Simple Firms in Nigeria
Hence, hitherto no study has been found in the available literature, which has
investigated the impact of various facets of entrepreneurial orientation on the
financial performance of Nigerian simple firms (i.e., firms that are ran and
operated by owner-managers) as categorized by Miller (1983). To address this
knowledge gap, this study draws on resource-based view (Barney, 1991) to
investigate the impact of innovativeness, proactiveness, and risk-taking
dimensions of entrepreneurial orientation on the financial performance of simple
firms operating in Kano State, Nigeria. The study structured is in five major
sections starting from the introduction of the study. The second and third sections
review related literature and develop hypotheses, as well as adopt the most
appropriate methodology for this study, while section four presents analysis of the
results for the study and the discussions, conclusions, and direction for future
research are all presented in the last section.
Covin and Slevin (1989) earlier argued that unlike conservative firms in which
top level management decision is decidedly non-innovative, risk-averse, and
reactive, entrepreneurial oriented firms are characterized as those that are
innovative, (told) business-related risk, and also proactive in their decisions. More
so, Covin and Slevin also extensively discussed the role of such entrepreneurial
orientation dimensions on the performance of small firms, and thus theorized that
they are highly significant to the performance of such firms as earlier
acknowledged by Miller (1983). More recently, Lumpkin and Dess (2001) argued
that each of the various dimensions of entrepreneurial orientation can be tested
differently on firm performance, because the relationship of every single
dimension with performance is contingent on the context of business. Equally,
various empirical studies conducted in some contexts other than Nigeria have
reaffirmed such relationships (e.g., Baba & Elumalai, 2011; Wang et al., 2001).
Hence, this study develops and proposes the following relationships based on the
independent effect of each dimension on performance as also suggested by
Mahmood and Hanafi (2013).
Wang et al. (2001) held that innovativeness refers to the effort of a firm in
finding new opportunities and new solutions. This involves an experimentation
and creativity, which result to new goods and services or improving technological
processes. In other words, innovativeness is the willingness of a firm to support
the creativity, new ideas, as well as experimentation in producing goods and
services (Mahmood & Hanafi, 2013), and also concerns with the openness of a
firm to new idea (Pratono et al., 2013). Wang et al. (2001) further posited that the
firms innovativeness can be in many forms, such as: Technological
innovativeness (consist of efforts on research and engineering in order to develop
new goods and services as well as process); Product-market innovativeness (such
as market research, market segmentation, product designed, advertisement and
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Entrepreneurial Orientation and Financial Performance of Simple Firms in Nigeria
On the other hand, proactiveness is associated with seeking first mover advantage
and forward-looking efforts to shape the firms business environment by
introducing new product and process ahead of competitors (Lyon et al., 2000).
Consequently, proactiveness as a dimension of entrepreneurial orientation, refers
to an opportunity-seeking and forward-looking behavior, which is characterized
by introduction of new products or services ahead of competitors in an
anticipation of expected future demand (Rauch, Wiklund, Lumpkin, & Frese,
2009). Proactiveness also includes an initiative effort and applying existing
advantages in shaping business environment and responding to competitive
challenges (Wang et al., 2001). Thus, managers with proactiveness posture and
always the first to come-up with proactive moves in terms of their firms products
and beat other competitors (Miller, 1983). Moreover, non-entrepreneurial firms
always imitate the moves of entrepreneurial ones instead of leading the way;
entrepreneurial firms are often in good position to source and sustain performance
over non-entrepreneurial ones. Hence, this study hypothesised that:
essence, firm with mangers who are so bold in taking business related risks are
more likely to achieve and sustain performance over non-entrepreneurial firms
that are characterized as risk-averse (Miller, 1983). Consequently, this study
hypothesised that:
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Entrepreneurial Orientation and Financial Performance of Simple Firms in Nigeria
factor reliability of all twelve items of this study are therefore reliable as they are
all above the threshold of 0.70 except items IN02 and RT01, which are 0.637 and
0.681 respectively. Although the aforementioned two items are below 0.70,
following Hair, Hult, Ringle, and Sarstedt's (2014) recommendation of accepting
any reflective item with loadings of 0.40 to 0.60 provided the grand average of its
main construct is at least 0.70. These items were, therefore, maintained as they
have above 0.40 factor loadings and also the averages of their respective
constructs lodgings are all above the required level of 0.70. Thus, all the adapted
items of this study are, therefore, reliable for measuring their respective
constructs.
On the other hand, the internal consistency reliability analysis for all constructs is
above the threshold of .70, and also the average variance extracted (AVE) that
represents the convergent validity of a reflective construct is also above the
threshold of 0.50. Consequently, as presented in Table 1, both the items and
constructs of this study, satisfy the requirements of item reliability, internal
consistency reliability, as well as convergent validity of measurement model
analysis (see Hair et al., 2014). Similarly, as presented in Table 2, the
discriminant validity of each of these constructs is also achieved as the square
root of the AVE (i.e., diagonal bolded figures) of each variable is higher than its
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Sokoto Journal of Management Studies, Vol. 10 (1) March, 2016
correlation with any other variable, and this therefore, indicates the
distinctiveness of each variable (Fornell & Larcker, 1981).
Note: The elements on the diagonal (bold headed) correspond to the square root
of the AVE of the construct.
Having satisfied the requirements of the measurement model analysis, the study
went ahead to test the significance of the aforementioned hypothesized
relationships using 5000 Bootstrapped subsamples. Hence, the result of the
structural model based on 5000 Bootstrapped subsamples on 125 cases presented
on Table 3 reveals that all dimensions of entrepreneurial orientation exert
influence on simple firms financial performance. Specifically, innovativeness is
significantly related to simple firms financial performance (=0.285, p<0.01),
and hence H1 (i.e., there is significant relationship between innovativeness and
simple firms financial performance) is supported. Proactiveness is also positively
related to performance ( =0.244, p<0.01), this statistical evidence also supported
H2 which states that there is significant relationship between proactiveness and
simple firms financial performance. Equally, H3 (i.e., there is significant
relationship between risk-taking and simple firms financial performance) is also
supported (=0.329, p<0.01). Consequently, the statistical data support all H1, H2
and H3 hypothesized relationships at 1 percent (i.e., 0.01) alpha value. However,
the coefficient of determination (i.e., R-Square [R2 value]) for the whole model is
0.581 (see Figure 1), which indicates that the exogenous variables (i.e.,
innovativeness, proactiveness, and risk-taking) of this study explain more than 58
percent variance of the endogenous variable (i.e., simple firms financial
performance).
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Entrepreneurial Orientation and Financial Performance of Simple Firms in Nigeria
IN01 0.773
0.637 Innovativenes
IN02 s
0.809
IN03
0.285
FP01
0.845
PR01 0.810
Financial
0.924
0.860 Proactiveness 0.244 Performance FP02
2
PR02 R = 581
0.920
0.763
FP03
PR03
0.329
RT01
0.788
0.783
Risk-taking
RT02
0.681
RT03
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Sokoto Journal of Management Studies, Vol. 10 (1) March, 2016
Even though the R2 value that represents the combined effects of these exogenous
latent variables on the latent endogenous variable (Hair et al., 2010; Hair et al.,
2006; Hair et al., 2014) is moderate based on Chin's (1998) rule of thumb. It is
equally important to assess the respective effect size (i.e., the change in the value
of the R2 when a particular exogenous variable is excluded from the whole model)
of each of these variables using the following formula developed by Cohen
(1988).
R2 Included R2Exluded
f2 = 1-R2Included
Where:
f2 is the F-square value that determines the effect size of a specific exogenous
variable on the endogenous variable. R2 Included represents the R2 value of the
endogenous variable before omitting a particular exogenous construct. And lastly,
R2Exluded is the change in the R2 value of the endogenous variable after excluding a
particular exogenous variable from a model. Based on the above formula, the f2
values of 0.02, 0.15, and 0.35, indicate small, medium, and large effects
respectively (Cohen, 1988). Hence, using this formula, each of innovativeness,
proactiveness, and risk-taking contributes a small effect on the total variance of
simple firms financial performance in this study. See Table 4.
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Entrepreneurial Orientation and Financial Performance of Simple Firms in Nigeria
On the other hand, like many positivism studies, this study has some limitations,
which may be required to be addressed in any future research. One of the major
limitations of this study concerns the method of collecting data on cross-sectional
basis, thus future effort may be required to conduct a similar study preferably in
the same context using longitudinal survey method that collects data over two or
more points of time, so as to compare and contrast with the present studys
findings and to be able to draw cause-effect interference appropriately. Second,
although the purpose of this study is to examine the effects of such
entrepreneurial orientations facets on simple firms financial performance
without any systematic influences of other factors (i.e., cause-effect
relationships), nevertheless, some owner-managers traits such as education and
experience might have been taken into consideration identity a class of owner-
managers whose firms are more entrepreneurial and more successful. Thus, a
future study may be needed preferably using multi-group analysis (MGA) to
investigate such traits that influence owner-managers and their firms
entrepreneurial postures in relation to their financial performance.
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Sokoto Journal of Management Studies, Vol. 10 (1) March, 2016
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Entrepreneurial Orientation and Financial Performance of Simple Firms in Nigeria
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