The purpose of this study is to explore the effects of influencing factors on corporate entrepreneurship and to examine how their activities affect small and medium-sized enterprise’s (hereafter SMEs) performance. It also examines the mediating effect of corporate entrepreneurship on firms’ performance. In this study, we examine further that stronger corporate entrepreneurship activities will be especially valuable for firms’ performance with a high level of emotional bonds between a CEO and their employees. Basically, firm-level entrepreneurship, corporate entrepreneurship, includes internal venturing and organizational renewal activities within large or established firms, going beyond the behavioral or psychological dimensions such as innovation, risk-taking, and pro-activeness of entrepreneurs.
Thus, many previous researchers have had much interest in fostering corporate entrepreneurship in a large, diversified firm. However, corporate entrepreneurship is also important in small and medium-sized organizations, where aggressive entrepreneurship activities are very much required to keep an organization in tune with its competitive setting. However, many studies of corporate entrepreneurship in Korea are not considered to have measured all aspects of firm-level entrepreneurship. In this study, we will assess firm-level entrepreneurship’s relationship with a firm’s performance, focusing on the concept defined by Zahra (1991) covering corporate entrepreneurship, that is, intrapreneuring, and strategic renewal activities conducted at the firm level.
Corporate entrepreneurship activities of SMEs in Korea have been increasing interest in recent years, although they are somewhat limited, compared to large companies. Therefore, we raise the following three questions in this study: First, what precedents have an effect on corporate entrepreneurship of SMEs? Second, can corporate entrepreneurship of SMEs have a positive effect on firm performance? Third, how does corporate entrepreneurship have a positive effect on firm performance? More specifically, this study aims to find answers to the above three questions.
First of all, we turn to the external environment condition and organizational slack as factors likely to affect corporate entrepreneurship of SMEs. The perceived environmental uncertainty of SMEs may cause them to realize the need of innovation and change. Thus, the more serious such uncertainty is, the more likely the company may become committed to entrepreneurship activities.
Given the nature of SMEs, however, lack of organizational resources may pose a serious threat when it is necessary to drive corporate entrepreneurship activities extensively. Entrepreneurial pursuits generally require considerable resources and considerable time, effort, and money must be invested. The higher the assessed level of organizational slack resources, in turn, the greater the economic incentive for the firm to invest in innovation, venturing, and strategic renewal activities. In this respect, environmental uncertainty and organizational slack are expected to have a positive effect on corporate entrepreneurship of SMEs. As a result, we set two hypotheses as below:
Hypothesis 1 : Perceived uncertainty of environment has a positive effect on corporate entrepreneurship.
Hypothesis 2 : Organizational slack has a positive effect on corporate entrepreneurship.
Many studies on corporate entrepreneurship have reported that corporate entrepreneurship had a positive effect on firm performance in various ways. For example, corporate entrepreneurship was found to have a significant effect on corporate innovation performance, financial performances, and competitive performance. However, most of these studies were limited to large or established firms, so we are not sure if we will have the same results from a study on SMEs. Accordingly, we hypothesize as follows:
Hypothesis 3 : Corporate entrepreneurship will has a positive effect on firm performance of SMEs.
Previous studies have shown that the uncertainty of the environment and organization slack also had a significant effect on firm performance, which implies that environmental characteristics themselves may have a significant effect on firm performance and that organizational slack will directly lead to better firm performance. We assume that corporate entrepreneurship can help the effect of environmental uncertainty and organizational slack on firm performance. Therefore, we hypothesize:
Hypothesis 4 :Corporate entrepreneurship will mediate the positive impact of perceived environmental uncertainty on firm's performance.
Hypothesis 5 :Corporate entrepreneurship will mediate the positive impact of organizational slack on firm's performance.
How corporate entrepreneurship has a significant effect on firm performance is not known well . Sometimes varied corporate entrepreneurship activities may cause worry about their status or resistance against changes among employees in SMEs. Thus, excessive corporate entrepreneurship activities sometimes may affect firm performance adversely. In this study, we suggest that paternalism-manager's affective cares to employee-plays a pivotal role in the relationship between corporate entrepreneurship and firm performance. In particular, manager's affective cares to employees like paternalism can be an important thing within Korean SMEs to reduce resistance among employees and boost their participation. As a result, we set the final hypothesis as follows:
Hypothesis 6 : The relationship between corporate entrepreneurship and firm performance are is moderated by social capital-affective cares to employees. Specifically, higher levels of paternalism will enhance the positive relationships of the corporate entrepreneurship.
To test these hypotheses, we selected 150 SMEs and sent questionnaires to the CEOs. A total of 145 CEOs answered the questionnaires and returned them to us. Out of the 145 questionnaires, 5 were rejected because they were not filled out completely, and the remaining 140 were used for the final analysis. In addition, to secure reliability, we chose 30 of these firms sent questionnaires to ask other executives in those firms. The age of the companies ranged from less than 10 years old to 30 years or older. When it came to the size, a majority of them had 50 to 100 employees. Finally, as far as the industry they belong to was concerned, general manufacturers ranked first (45.7%) followed by bio-medical, IT, and semiconductor industry in that order.
A regression analysis to test the hypotheses revealed that perceived environmental uncertainty and organization slack had a significant positive effect on corporate entrepreneurship, confirming both Hypotheses 1 and 2. Furthermore, the uncertainty of the environment and organization slack had a significant positive effect on firm performance. Corporate entrepreneurship itself was found to have a significant effect on firm performance, and the uncertainty of the environment and organization slack served as a significant mediating variable to the effect on firm performance, also confirming Hypotheses 3, 4, and 5. Finally, in relation to the effect of corporate entrepreneurship on firm performance, social capital appeared to have a significant mediating effect. We found that while having a significant effect on firm performance as it is, social capital had a significant positive effect on firm performance by interacting with corporate entrepreneurship. The result supports Hypothesis 6.
The study showed that among SMEs in Korea, corporate entrepreneurship activities were influenced by the uncertainty of the environment and organizational slack. In addition, the uncertainty of the environment and organizational slack appeared likely to have a significant direct effect on firm performance, while being more likely to have an indirect effect on firm performance via corporate entrepreneurship activities. While corporate entrepreneurship or social capital itself was found to have a significant positive effect on firm performance, we found that corporate entrepreneurship had a greater effect through its interaction with social capital, in relation to its effect on firm performance.
These findings from this study imply that the effect of corporate entrepreneurship of SMEs on firm performance is important. We also suggest that considering that while uncertainty of the environment and organization slack had an effect on firm performance, corporate entrepreneurship may play an important role. Furthermore, both corporate entrepreneurship and social capital had an important effect on firm performance and worked better sometimes by interacting with each other. These results indicate that corporate entrepreneurship activities can make a greater contribution to firm performance by means of participation and coordination of employees.
Nevertheless, these findings have a limit to generalize, because the study focused on SMEs in Korea, where a traditional patriarchal culture has been strong, and where affective cares of employers for employees can help reduce conflict and resistance in relation to corporate entrepreneurship activities. Therefore, we are not certain that the same result will be obtained from a study focusing on SMEs in other countries. Therefore, further studies of this kind are considered necessary focusing on SMEs in various countries.
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