To better understand why entrepreneurial orientation (EO) is positively associated with company performance, we propose and test a reconceptualization of how the components of EO (risk taking, innovativeness, proactiveness) combine in driving performance. Drawing on financial economics theory, our conceptualization highlights that all three components positively contribute to performance, but in different ways. Risk taking has a direct positive relationship with performance, which can be understood through the risk-return tradeoff that is central in financial economics theory. The relationship between risk taking and performance is conditional on the level of innovativeness and thus innovativeness contributes to performance through its effect on the type of risk taking. Proactiveness contributes to performance through its positive effect on the level of risk taking.
- entrepreneurial orientation
- risk taking