Abstract

This study aims to verify direct relationship between entrepreneurial orientation (EO) and performance and the interaction of the perceived environment as third variable on EO-performance relation. The study was conducted on 210 firms among Bumiputera small and medium enterprises (BSMEs) in three states of northern Peninsular Malaysia, namely Penang, Kedah and Perlis. Using factor analysis and varimax rotation, each component was loaded with three items that has value of factor loadings more than .40. Factor analysis identified four factors of EO as independent variable namely, autonomy, innovativeness, proactiveness and risk taking dimensions. Perceived environmental factors consisted of five dimensions of munificence, turbulence, competition, market dynamism, and restrictiveness identified as moderators. Three dependent variables identified as return on sales (ROS) return on assets (ROA) and return on capital (ROC) used in the study. Four control variables of sole proprietorship; partnership, private limited company and small-sized firm were dummy-coded to ascertain their influence in performance. EO dimensions are multidimensional where each of the four dimensions is a separate component. Each of the components consists of three items. Hypothesis testing utilized four steps hierarchical multiple regression analysis. Four steps model shown in F-value and positive beta coefficient shows the statistical significance of direct relation and interaction effect. In the first step of the analysis, two control variables directly affected ROS. The second step of the analysis found direct relation of three EO dimensions related to higher performance. In the third step, all perceived environmental factors found directly related with performance. The fourth step detected interaction effect where significant model and beta coefficients further tested with post-hoc probing by curve analysis on 2x2 graphs. Perceived environmental factors moderated the relationship between EO and performance.

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