The nexus between entrepreneurial orientation and performance: enabling roles of absorptive capacity

Purpose Developing countries' economic growth very much depend on the successful performance of entrepreneurial-oriented firms. Entrepreneurial orientation (EO) is a valuable conjecturer of firm success. This study mainly focuses on analyzing the effect of EO on the firm performance (FP) with the mediating role of absorptive capacity (ACAP). Design/methodology/approach To test the hypothetical model, we collected 226 valid responses from senior managers of small and medium enterprises (SMEs). The structural equation modeling technique is performed and research hypotheses are validated. Findings The findings show that the strong causal relations exit between EO, ACAP and FP. In brief, EO was found to be a predictor of ACAP, and ACAP has a strong positive impact on FP. Moreover, ACAP substantiated to be a mediator between EO and FP. Research limitations/implications A notable ramification of this finding is that for SMEs to enhance their performance via EO, the presence of ACAP as a mediator is essential. Practical implications The findings of this study can be used as a basis to consider EO to increase firms' level of ACAP and to enhance FP. As a whole, the findings offer pragmatic insights for SMEs and pertinent stakeholders. Originality/value So far, little is known about the interrelationship between EO, ACAP and FP. Importantly, the mediating role of ACAP between EO and FP has remained unexplored. This study fills this gap in the existing literature.