Beyond “uncertainty”: How distinct types of perceived uncertainties catalyze or paralyze firm innovation

Despite considerable scholarly attention to uncertainty management in entrepreneurship, it remains unclear how entrepreneurs' perceived environmental uncertainty shapes entrepreneurial actions, such as innovation actions, in their firms. A positive view interprets innovation as a promising approach to uncertainty management, thus suggesting a positive effect; while a negative view sees uncertainty as an obstacle to innovation, thereby proposing a negative effect. We reconcile this tension based on the typology of perceived environmental uncertainty (PEU)—i.e., state, effect, and response uncertainty, which respectively focus on the nature of environmental changes, the consequences of any changes for focal firms, and the availability or effectiveness of potential responses. We posit that state and effect uncertainty perceived by entrepreneurs encourages innovation actions, whereby the positive influence of state uncertainty is stronger than that of effect uncertainty. In contrast, we expect response uncertainty perceived by entrepreneurs to discourage innovation actions. Using hand-collected multiple-wave multiple-informant survey data on 146 small firms in Malaysia, we show evidence for most of our arguments. Our study disentangles the distinct impacts of three types of perceived uncertainty, thereby advancing a more fine-grained understanding of when perceived uncertainty catalyzes or paralyzes entrepreneurial action.