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Why does entrepreneurial orientation affect company performance?

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Research summary To better understand why entrepreneurial orientation (EO) is positively associated with company performance, we propose and test a reconceptualization of how the components of EO (risk-taking, innovativeness, proactiveness) combine in driving performance. Drawing on financial economics theory, our conceptualization highlights that all three components positively contribute to performance, but in different ways. Risk-taking has a direct positive relationship with performance, which can be understood through the risk–return tradeoff that is central in financial economics theory. The relationship between risk-taking and performance is conditional on the level of innovativeness and thus innovativeness contributes to performance through its effect on the type of risk-taking. Proactiveness contributes to performance through its positive effect on the level of risk-taking. Managerial summary This study analyzes three key drivers of company performance: risk-taking, innovativeness, and proactiveness. We show that constructive risk-taking is the central driver of company performance, mirroring the principle of risk and return in financial investment settings. Risk- taking that is associated with innovation has a particularly strong positive relationship with performance, consistent with innovation being a driver of growth and profitability. More proactive firms tend to take on more risk and thus also perform better than less proactive firms.

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  • Talis Putnins & Arnis Sauka, 2020. "Why does entrepreneurial orientation affect company performance?," Published Paper Series 2020-6, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  • Handle: RePEc:uts:ppaper:2020-6
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    File URL: https://onlinelibrary.wiley.com/doi/abs/10.1002/sej.1325
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    Keywords

    conceptualization; entrepreneurial orientation; innovativeness; performance; proactiveness; risk-taking;
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