Does Risk‐taking Promote New Product Development Performance? An Environmental Dynamism Perspective

• Date: 01 June 2018
• Author: Saixing Zeng,Jiao Xue,Yunfeng Peng,Xiaohua Meng
• DOI: http://doi.org/10.1111/ajfs.12215
• Published date: 01 June 2018

Does Risk-taking Promote New Product

Development Performance? An

Environmental Dynamism Perspective*

Jiao Xue

School of Finance, Shanghai University of Finance and Economics, China

Saixing Zeng

Antai College of Economics and Management, Shanghai Jiao Tong University, China

Xiaohua Meng

Department of Management Science and Engineering, Soochow University, China

Yunfeng Peng**

PBC School of Finance, Tsinghua University, China

Received 30 July 2017; Accepted 19 December 2017

Abstract

Using an “entrepreneurial orientation–performance” framework and environmental contin-

gency theory, this study proposes and empirically explores a theoretical framework for under-

standing the impacts of risk-taking and environmental dynamism on new product

development (NPD) performance in emerging markets. We deepen the analysis of environ-

mental dynamism into customer, competitor, supplier, institutional environment, and

economic environment. The results demonstrate that risk-taking and environmental dyna-

mism contribute both individually and interactively to the performance of NPD. Further, of

all the environmental units, environmental dynamism from suppliers and regulatory groups

has a significant, direct and positive moderating effect on the performance of NPD.

Keywords Risk-taking; Environmental dynamism; New product development; Moderating

effect

JEL Classification: M11, Z13

*The authors would like to thank the Guest Editor and anonymous referees for very helpful

suggestions that substantially improved this article. This research is supported by the

National Natural Science Foundation of China (Grant No. 71790591, 71390525,

71620107004, 71573185), and funded by the China Postdoctoral Science Foundation (Grant

No. 2017M620720, 2017M621426).

**Corresponding author: PBC School of Finance, Tsinghua University, Beijing, China. Tel: +86-

10-8302-1581, Fax: +86-10-8302-1581, email: pengyf@pbcsf.tsinghua.edu.cn.

Asia-Pacific Journal of Financial Studies (2018) 47, 381–400 doi:10.1111/ajfs.12215

©2018 Korean Securities Association 381

1. Introduction

The continuous development and introduction of new products into the market are

indispensable to sustained company performance and a major driving force behind

firm growth, given the large extent to which companies focus their efforts on new

product development (NPD) for survival, profitability, growth, and expansion (Atu-

ahene-Gima and Ko, 2001; Mu et al., 2009). In emerging markets such as China,

NPD is a critical activity and a potential source of competitive advantage (Brown

and Eisenhardt, 1995; Li et al., 2006). To remain up-to-date with dynamic techno-

logical conditions and market changes, organizations increasingly rely on NPD to

generate creative ideas and to mold these innovative ideas into new products.

Although new products provide new opportunities, the substantial risk associ-

ated with new products should not be neglected (Ernst, 2002). Product innovation

involves the creation of resource combinations that may require competencies not

currently available in the organization and generates greater risks than continued

production of current products (Atuahene-Gima and Ko, 2001). Instead of practic-

ing risk avoidance, firms must take risks to launch new products speedily and suc-

cessfully (Zahra, 1993; Mu et al., 2009). The concept of risk-taking is rooted in

entrepreneurial orientation (EO), which is considered the learning and selection

mechanism that leads to risk-taking behavior in NPD (Miller, 1983; Lumpkin and

Dess, 1996). Despite the widely acknowledged importance of EO in NPD, little is

known about how the degree of risk-taking affects NPD performance.

Research on EO has preliminarily contributed to our understanding of the effect

of risk-taking on firm performance (Wiklund and Shepherd, 2003). However,

through a meta-analysis, Rauch et al. (2009 ) found that risk-taking had a weaker

correlation with performance than other dimensions of EO. Moreover, Wiseman

and Catanach (1997) discovered that the effect of risk-taking on firm performance

was negative in some contexts. Unfortunately, most EO research considers different

dimensions of EO as a single converged factor (Rauch et al., 2009). Only a few

scholars (e.g., Stetz et al., 2000) have argued that analysis of the effect of EO should

be performed at the dimension level. Thus, previous research has not sufficiently

emphasized the individual effect of risk-taking on NPD performance.

The influence of the external environment on firms’ strategic NPD decision-

making is a burgeoning field of research and has emerged as an underlying theme

(Rosenbusch et al., 2013). Firms are faced with a dynamic environment, but empiri-

cal research on the relationship between environment and NPD performance has

not generated conclusive results.

As previously mentioned, NPD is risky and is even more challenging when the

external environment is turbulent (Cooper, 2003). However, little is known about

how a firm’s risk-taking is related to its NPD performance. In addition, few studies

have examined the role of environmental dynamism in economies that are undergo-

ing the transition from central planning toward being market driven. In this study,

we address the stated knowledge gaps and extend the research on NPD by

J. Xue et al.

382 ©2018 Korean Securities Association