Firm growth, adaptive capability, and entrepreneurial orientation

• Published date: 01 March 2017
• Author: Yoshihiro Eshima,Brian S. Anderson
• DOI: http://doi.org/10.1002/smj.2532
• Date: 01 March 2017

Strategic Management Journal

Strat. Mgmt. J.,38: 770–779 (2017)

Published online EarlyView 11 July 2016 in WileyOnline Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2532

Received 2 July 2015;Final revisionreceived 3 March 2016

FIRM GROWTH, ADAPTIVE CAPABILITY,

AND ENTREPRENEURIAL ORIENTATION

YOSHIHIRO ESHIMA1and BRIAN S. ANDERSON2*

1Institute of Small Business Research and Business Administration, Faculty of

Business Administration, Osaka University of Economics, Osaka, Japan

2Division of Management and Entrepreneurship, Leeds School of Business,

University of Colorado, Boulder, Colorado, U.S.A.

Research summary: This paper posits adaptive capability as a mechanism through which a

rm’s prior growthinuences the exhibition of future entrepreneurial action. Dened as the rm’s

prociency in altering its understanding of market expectations, increased adaptive capability

is a consequence of the new resource combinations that result from expanding organizational

boundaries. Increased adaptive capability in turn corresponds to expansion of entrepreneurial

activity,as rms increase their entrepreneurial orientation as the strategicmechanism to capitalize

on their improved understanding of market conditions. We nd support for our research model in

a two-study series conducted in South Korea and the United Kingdom.

Managerial summary: Most would agreethat entrepreneurially oriented rms —being innovative,

entering new markets, and taking risk— grow faster. But how a rm becomes entrepreneurial is a

complicated question. In this study, we ipped the growth relationship around and found support

for growthcontributing to a rm’s entrepreneurial orientation. But between growthand being more

entrepreneurial is the rm’sability to recognize changes in market expectations. We arguethat as

a rm grows, it acquires new resources and new knowledge of how to use those resources. These

new resource combinations increase its ability to recognize changes in market expectations— its

adaptive capability.This capability uncovers new entrepreneurial opportunities for value creation.

Tocapture this potential value, rms expand their entrepreneurial orientation. Copyright © 2016

John Wiley & Sons, Ltd.

INTRODUCTION

Prior growth is a weak correlate with future

growth (Shepherd and Wiklund, 2009). Ample

constraints exist on a rm’s ability to maintain

growth, including managerial desire, competitive

pressure, resource acquisition, and market changes

(Fombrun and Wally, 1989). Nonetheless, once

growing, rms tend to seek ways to perpetuate

Keywords: rm growth; adaptive capability; entrepre-

neurial orientation; structural equation modeling; endo-

geneity

*Correspondence to: Brian S. Anderson, Bloch Executive Hall

5108 Cherry St., Ste. 321 Kansas City MO 64110-2446

816-235-2316. E-mail: brian.s.andersonbri@umkc.edu

Copyright © 2016 John Wiley & Sons, Ltd.

growth (Penrose, 1959). The principal mechanism

to do so is entrepreneurial orientation (EO) (Miller,

1983). EO is the joint exhibition of innovative

and proactive entrepreneurial behaviors, and a

managerial willingness to pursue opportunities

with uncertain outcomes (Anderson et al., 2015).

A popular construct in strategic entrepreneurship

research, EO is important because consistent

ndings show that entrepreneurial rms grow faster

(Rauch et al., 2009).

Following Penrose (1959), we argue that being

entrepreneurial is as much a contributor of growth

as it is a consequence. When rms grow they

acquire new resources, and with it, the possibil-

ity to combine new and existing resources in new