This study investigates the effects of entrepreneurial orientation and knowledge management capabilities on innovation, competence upgrading and organizational effectiveness among companies in Taiwan, listed in the Top 1000 Firms. The study also examines whether social capital moderates the effects of orientation and knowledge on effectiveness. It was found that entrepreneurial orientation has a positive influence on the capability of organization to manage their knowledge, on new product or process innovation, on the upgrading of their competence as well as on organizational effectiveness. Furthermore, knowledge management capabilities have a significant impact on innovation and organizational effectiveness. Finally, social capital moderates the effect on entrepreneurial orientation and knowledge management capabilities on the dependent variables. It is argued that these findings have practical implications for business practitioners and academics. The limitations of the study as well as directions for further research are also discussed. Introduction Nowadays, competitive advantage no longer relies just on tangible assets and natural resources, but on how effectively firms manage knowledge. Intensifying global competition forces companies to innovate and improve or upgrade their competence frequently in order to maintain their competitive advantage in the global market. In general, this requires the fast exploring and acquiring of critical information and knowledge of the market and of its internal organization (Zahra & George, 2002). Wiklund and Shepherd (2003) suggest that future opportunities can be 'discovered' by combining an entrepreneurial orientation with knowledge management. When this combination can be effectively maintained by organizations, the likelihood of underpinning innovation and developing new competencies tends to be higher (Burstein, et al., 2003). By managing knowledge as a continuous process, organizations are able to meet existing and emerging needs, identify, exploit existing and acquired knowledge assets in order to develop new opportunities (Quintas et al., 1997; Carrillo et al., 2004). Furthermore, since knowledge is the key resource for competitive advantage, storing and protecting knowledge creates value for the organization (Berry, 2000) to keep innovating without fear of being imitated by others. In addition, Ireland and Hitt (1999) proposed innovation and competence upgrading as two major factors for organizations to compete effectively in the market. Organizations should focus on innovation and developing their competence intensively to differentiate themselves from competitors. This condition should be based on managing knowledge effectively, by integrating existing knowledge and new information in order to develop new knowledge that will improve innovation (Perez-Bustamante, 1999). The consequence of this strategy is the enhancement of organizational effectiveness. In order to provide comprehensive measures of organizational effectiveness it is necessary to include financial performance measures, because the well-performed organization does better financially. The roles of social capital on innovation and on competence upgrading have been discussed intensively in the literature (Tsai & Ghoshal, 1998; Burt, 1997; Gold et al., 2001). It is suggested that social capital can enhance firms capacity to diffuse, utilize, and disseminate resources within the organization. As the components of social capital, trust, commitment and interaction tend to intensify the willingness of organizational members to share resources and information. Tsai (2000) suggested that social capital is an important factor for assisting the organization to create value. In the oriental culture, social capital tens to focus on the social networks in society (guanxi), something that is more relationship-based rather than collectivity-based (Marsh, 2003) and is different from the western point of view. …
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