A tale of two predictors : the impact of regulatory focus and entrepreneurial orientation on small and medium-sized enterprises
Small and medium-sized enterprises (SMEs) contribute significantly to economic growth and job creation. Given the importance of SMEs, this study examines the factors that may impact their outcomes (i.e., behaviours and performance). In particular, it examines the effects of chief executive officers’ (CEOs’) regulatory focus and firms’ entrepreneurial orientation (EO) on SMEs. Regulatory focus theory suggests that people can pursue their goals via a promotion focus (associated with a concern for growth and a desire for gains) or a prevention focus (associated with a concern for safety and a desire to avoid losses). As an individual-level motivational characteristic, regulatory focus underlies the motives people are aiming to satisfy, the goals they pursue, and the strategic means they prefer to implement in striving for their goals. Since CEOs are the top decision makers, their decisions induced by regulatory focus should have an impact on firms they lead. Additionally, EO refers to a firm-level behavioural construct that involves three independent dimensions, namely, innovativeness, risk-taking, and proactiveness. Since organisations often rely on entrepreneurial activities to renew themselves, their levels of innovativeness, risk-taking, and proactiveness should have an impact on their performance. This study expands research on regulatory focus theory and entrepreneurial orientation through examining (a) the effects of CEO regulatory focus on SME performance and how the effects differ between firms operating in different industry environments (i.e., high-tech and low-tech industries); (b) the independent effects of firms’ levels of innovativeness, risk-taking, and proactiveness on SME performance and how the effects differ between firms operating in different industry environments; and (c) the influences of CEO regulatory focus on SMEs’ levels of innovativeness, risk-taking, and proactiveness. In so doing, this study also contributes to entrepreneurship research in two ways. First, it provides insights about how the effects of regulatory focus and the dimensions of EO on SMEs are contingent on the industry environment in which firms operate. Second, it sheds light on how the individual-level characteristic and firm-level behaviours differ in explaining the variance in firm outcomes. I collected online survey data from 110 SMEs in the UK. The empirical results demonstrate that CEO regulatory focus is associated with SME performance. Specifically, CEO promotion focus is positively, and CEO prevention focus is negatively associated with SME performance. Industry environment moderates the relationship between CEO promotion focus and SME performance. That is, CEO promotion focus has stronger effects on SMEs in high-tech industries than those in low-tech ones. However, a moderating role of industry environment on the relationship between CEO prevention focus and SME performance is not observed. The findings also suggest that the three dimensions of EO have unique effects on SME performance. Specifically, there is an inverted U-shaped relationship between innovativeness and SME performance, a U-shaped relationship between risk-taking and SME performance, and a positive linear relationship between proactiveness and SME performance. Industry environment moderates the performance effects of innovativeness and proactiveness on SMEs except for risk-taking. In particular, innovativeness has stronger effects on SMEs in low-tech industries, whereas proactiveness has stronger effects on SMEs in high-tech industries. Moreover, the empirical results demonstrate that CEO promotion focus positively impact SMEs’ levels of innovativeness and proactiveness except risk-taking, while CEO prevention focus negatively impact SMEs’ levels of risk-taking and proactiveness except innovativeness. The empirical results indicate that innovativeness, risk-taking, and proactiveness together account for 14% of the variance in SME performance, whereas CEO promotion and prevention focus account for 6% of the variance in SME performance. As such, firm-level entrepreneurial behaviours regarding innovativeness, risktaking, and proactiveness are more robust predictors in explaining the variance in SME performance than individual-level CEO characteristic concerning promotion and prevention focus. Additionally, the results reveal that CEO promotion and prevention focus are the antecedents of SMEs’ entrepreneurial behaviours. While regulatory focus and EO refer to different natures of phenomenon and represent constructs at different levels, this study shows that both factors have substantial impacts on organisations. Therefore, to understand the organisational outcomes of SMEs, it is paramount to consider CEO regulatory focus and EO.
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