Entrepreneurial orientation and firm performance in SMEs:The case of Jordan

Abstract: While there is an abundance of research that shows a direct and positive relationship betweenentrepreneurial orientation (EO) and organizational performance the relationship is far from simpleand clear. Research suggest that the relationship is complex and is contingent on internal andexternal variables that affect this relationship. This study examines the effect of EO and itsdimensions on organizational performance in SMEs in Jordan. Further, the study examines themediating effect of internal and external contingency factors such as: market orientation, strategicflexibility and environment hostility on the EO-performance relationship. Using questionnairesurvey the study collected 137 usable questionnaires and utilized PLS to analyze the data. Thestudy found that EO significantly affects performance directly and positively. The study also founda mediating effect of environmental hostility on the relationship between EO and organizationalperformance. No evidence was found to support that MO and strategic flexibility have a mediatingeffect on the EO-performance relationship. With regards to the effect and mediation effect of EOdimensions; the study found that both innovativeness and proactiveness have a significant positivedirect effect on performance. While risk taking has a significant negative direct effect onperformance. With regards to the mediation effect of market orientation, strategic flexibility andenvironmental hostility on the relationships between EO dimensions (innovativeness,proactiveness and risk taking) the study found that only EH has a mediation effect while marketorientation and strategic flexibility have no mediation effect.Specifically, the study also found that EH mediates the relationship between innovativeness andperformance. The mediation is a full mediation since there are both direct and indirect effects ofinnovativeness on performance. The study found a partial mediation effect of EH on theproactiveness-performance relationship since the direct effect becomes insignificant when themediator is added. The study also found a partial mediation effect of EH on the risk takingperformance relationship since the direct effect becomes insignificant when the mediator is added.