Environment, Corporate Entrepreneurship, and Financial Performance: A Taxonomic Approach

Posted: 17 Nov 2009

See all articles by Shaker A. Zahra

Shaker A. Zahra

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: 1993

Abstract

Investigates the association among the firm's external environment, financial performance, and corporate entrepreneurship. Three propositions are emphasized to examine environmental munificence and hostility and their association to corporate entrepreneurship: (1) perceived characteristics of the environment play an important role in pursuits of corporate entrepreneurship; (2) environments within and across industries are heterogeneous; and (3) there is a need to use multiple dimensions to capture a company's perceptions of its environments. Corporate entrepreneurship may involve new ventures (e.g., new products or new businesses), or corporate renewal (e.g., reorganization). On the premise that the perceived characteristics of a firm's external environment are an important predecessor of corporate entrepreneurship, the following six hypotheses are presented and explored: (1) companies will emphasize new business creation and innovation in dynamic and growth environments; (2) the redefinition of business through venturing activities is positively related to environmental hostility; (3) hospitable environments are positively associated with both business venturing and renewal activities; (4) static environments are inversely associated with corporate venturing and renewal activities; (5) company financial performance and corporate entrepreneurship are positively related; and (6) the corporate entrepreneurship activities mentioned in the first four hypotheses will be significantly and positively connected with company financial performance in their respective environmental settings. Data from 102 firms in six four-digit industrial classification codes (SIC) were used with cluster analysis to distinguish four environmental settings: dynamic growth; hostile and rivalrous but technologically rich; hospitable, product-driven growth; and static and impoverished. These four environmental clusters (derived from top executives' perceptions about their firm environment) were used to examine variations in corporate entrepreneurship, and to test the six hypotheses. Findings demonstrate that each environmental cluster has a distinct combination of activities relating to corporate innovation, venturing, and renewal; that corporate entrepreneurship activities vary in their association with measures of company growth and profitability; and that the associations between corporate entrepreneurship and company financial performance vary among the four environmental clusters. (SFL)

Keywords: Hostile environments, Food industry, Financial performance, Corporate entrepreneurship, Internal ventures, Innovation process, Business conditions, Manufacturing industries, Environment

Suggested Citation

Zahra, Shaker A., Environment, Corporate Entrepreneurship, and Financial Performance: A Taxonomic Approach (1993). Journal of Business Venturing, Vol. 8, Issue 4, p. 319-340 1993. Available at SSRN: https://ssrn.com/abstract=1506340

Shaker A. Zahra (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

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