Entrepreneurial orientation, CEO power and firm performance: an upper echelons theory perspective

Abrar Ali Saiyed · Ekrem Tatoğlu · Salman Siddeeque Ali · Dev K. Dutta

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Entrepreneurship Studies and Influences Corporate Finance and Governance Innovation and Knowledge Management

Abstract

Purpose Adopting insights from the upper echelons theory, this study aims to investigate the relationship between entrepreneurial orientation (EO) and firm performance under the contingent influence of chief executive officer (CEO) power. Design/methodology/approach Data were collected from a sample of large publicly-traded Indian software firms using the Prowess Database of Center for Monitoring Indian Economy (CMIE). Panel data regression analysis was used to test the study's hypotheses. Findings The results indicate that EO has an inverted U-shaped relation with firm performance. Strong support is also found for a negative moderating influence of CEO power on the inverted U-shaped relationship between EO and firm financial performance, suggesting that powerful CEOs eventually harm entrepreneurial firms. Practical implications The study encourages firms to have entrepreneurship orientation, but at a moderate level, to get the maximum benefit of EO. The study also explains to managers to what extent CEO power drives EO. Originality/value The study contributes to the intersection of corporate entrepreneurship and upper echelons theory. The study shows that CEO power negatively affects the EO and firm's performance relationship. This study holds important insights for managers of entrepreneurial firms, especially in international contexts and emerging markets.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1983Separation of Ownership and Control 1996Clarifying the Entrepreneurial Orientation Construct and Linking It To Performance 1984Upper Echelons: The Organization as a Reflection of Its Top Managers 2005Open for innovation: the role of openness in explaining innovation performance among U.K. manufacturing firms 1989Strategic management of small firms in hostile and benign environments 1983The Correlates of Entrepreneurship in Three Types of Firms 2007Upper Echelons Theory: An Update

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