An entrepreneurial paradox: the moderating effect of the external environment

Although entrepreneurial orientation (EO) has been shown to play a key role in increasingfirm performance (FP), the effects of EO have been extremely oversimplified. The plethoraof empirical studies on EO and FP suggest that the EO –FP relationship is linearly positiveregardless of the amount of EO investment. The results show that EO increases FP at thebounded level (i.e. an inverted U-shape). We argue that the excessive use of EO,organisational incapability and institutional constraints may contribute to the non-linearity ofsuch effects. We also find that environmental dynamism has no significant effect. Further,contrary to the normative contention, we find that environmental hostility has a negativeeffect on the EO –FP relationship. The effect of environmental hostility on EO mayvary depending on various factors such as firm size, resources, and institutional settings. We present prescriptive implications to practitioners on the antecedent conditions for EOpractices.