Green entrepreneurial orientation for enhancing firm performance: A dynamic capability perspective

Abstract

Despite much attention has been focused on the importance of green entrepreneurial orientation, its impacts on environmental and financial performance remains unclear. Drawing on dynamic capability theory, we hypothesized that green entrepreneurial orientation has positive influences on two types of firm performance. The relationship between green entrepreneurial orientation and firm performance is moderated by green technology dynamism and knowledge transfer and integration. We tested the research hypotheses using data from 264 Chinese firms. The results indicate that green entrepreneurial orientation has positive influences on both environmental and financial performance. In addition, green technology dynamism only negatively moderates the relationship between green entrepreneurial orientation and environmental performance, while knowledge transfer and integration positively moderates the relationships between green entrepreneurial orientation and environmental and financial performance. This study enhances our understanding on green entrepreneurial orientation, described as a dynamic capability, can exploit new ideas and encourage innovativeness, show a propensity to catch potential opportunities, and take risks in transforming the social economy into the social-ecological economy. This study provides suggestions for firms to achieve competitive advantages under conditions of uncertainty and for effective knowledge transfer and integration.

Introduction

As environmental issues are becoming increasingly significant threats to economic growth, firms regard human health and living conditions as integral parts of core business activities (Leonidou et al., 2017, Liu et al., 2016). Government and scholars are also paying more attention towards environmental degradation and focus on the solution of environmental issues (Boons et al., 2013). In particular, recent research has suggested that green entrepreneurial orientation (GEO) plays crucial roles in achieving better financial performance as well as minimizing environmental impacts (Parry, 2012, Schaefer et al., 2015).

GEO refers to a predisposition to pursue potential opportunities that produce both economic and ecological benefits through the introduction of eco-friendly products and services (Dean and McMullen, 2007, Gibbs and O'Neill, 2014). Although the core motivation for green entrepreneurship as well as the benefits of green entrepreneurship (e.g., economic, environmental, and social value) have been addressed in previous research (Gast et al., 2017, Kirkwood and Walton, 2014, Thompson et al., 2011), how GEO influences environmental and financial performance remains unclear.

Our understanding of the conditions under which GEO influences environmental and financial performance is far from comprehensive. While some studies propose a negative relationship between a tangible-external greening strategy in the form of offering green products and services and firm performance (e.g., Shrivastava and Tamvada, 2017), others demonstrate a positive impact of green entrepreneurship on financial and environmental performance (e.g., Hockerts and Wüstenhagen, 2010, Gibbs and O'Neill, 2012). Some even indicate that the encouragement of entrepreneurship is not appropriately associated with financial benefits (Nikolaou et al., 2011, Parrish, 2010) and firm growth (Leoncini et al., 2017). Considering the inconsistent findings for the performance outcomes of GEO, we focus on an important factor of the external environment which is rarely taken into consideration.

This study explains the relationships between GEO and two types of firm performance from the dynamic capability perspective. The firm-level capabilities are fallen into two separable dimensions: ordinary capabilities and dynamic capabilities (Teece, 2014a). Whereas ordinary capabilities involve the operational performance of business functions that are related to task activities, dynamic capabilities are about sensing, seizing, and transforming. Dynamic capability theory (DCT) describes that dynamic capabilities are higher-order capabilities to select, develop, and coordinate ordinary capabilities (Teece et al., 1997). Following Teece's (2016) ideas, dynamic capabilities are about learning and supporting experimentation, recombining resources to grow in new products, and transforming the existing system. GEO is undergirded by three sets of organizational processes: green innovativeness, proactiveness, and openness to risk and vulnerability. Thus, GEO appears to be associated with the notions of dynamic capabilities (York and Venkataraman, 2010).

Firms adopting GEO may contribute to superior environmental performance by several mechanisms. First, GEO addresses environmental issues by creating green products and services (Chen and Chang, 2013). Second, the reduction of hazardous emission or toxic materials improves safety and health at work (Xie et al., 2016). Third, focusing on consumer safety and health increases social welfare (Chuang and Yang, 2014). Similarly, GEO enables a firm to enhance financial performance by three channels. First, green product and process innovations address energy or resource costs (Chuang and Yang, 2014). Second, being an active posture in the pursuit of green opportunities may achieve first-mover advantage (Pacheco et al., 2010). Third, a willingness to invest large amounts of resources to projects that report unusual gains or losses (Woldesenbet et al., 2012). Taken together, GEO may improve environmental and financial performance.

The relationship between GEO and firm performance may be distinct under different environmental conditions (Jiang et al., 2016, Saeed et al., 2014, Shirokova et al., 2016). By managing knowledge effectively, firms can effectively implement their entrepreneurial orientation (Bojica and Fuentes, 2012, Patel et al., 2015). This study focuses on the impacts of knowledge management capabilities on the relationship between GEO and firm performance. Changes in a dynamic environment may facilitate knowledge creation, search, and diffusion, and knowledge exchanges are identified as improved indicators of knowledge creation capabilities (Denford, 2013, Sirmon et al., 2007). In this study, a rapidly changing technological environment is considered as green technology dynamism (GTD), and a process of acquiring, recognizing, absorbing, and transferring internal knowledge into new organizational activities is referred to as knowledge transfer and integration (KTI) (Nieves and Haller, 2014, Real et al., 2014, Sheng et al., 2011). Drawing upon DCT, firms adopting a strong GEO will achieve competitive advantages by enhancing their eco-knowledge absorption capabilities (Pérez-Luño et al., 2011). Similarly, firms adopting GEO will achieve competitive advantages by leveraging internal knowledge of the firm to create new knowledge and offer a base for innovation (De Clercq et al., 2015, Zhao et al., 2011). Therefore, this study proposes that GTD and KTI may moderate the relationship between GEO and two types of performance.

This study is conducted in the context of China for three compelling reasons. First, the 19th National Congress of China has laid out several new prospects and goals, such as the development of the ‘green economy’, addressing environmental issues, the protection of ecosystems, and a new generation of environmental regulation (Xi, 2017). GEO contributes to building a ‘Beautiful China’ and affects long-run growth (Zhao et al., 2011, Zhang et al., 2016). Second, the daily averages of PM 2.5 concentration in northern China has exceeded the World Health Organization's guideline by almost 56 times, pointing to nearly 500,000 pre-mature deaths per year (Chen et al., 2013). Moreover, the poor quality of groundwater and surface water in China leads to nearly 60,000 deaths every year (Qiu, 2011). Despite the growing public concerns for environmental issues, how firms in China reduce environmental degradation through entrepreneurial action remains unclear (Li, 2014, Zhu et al., 2012). Economic reform and uneven regional development in China provide a relatively strong test of differences across West culture and an interesting context for this study. Finally, since the late 1970s, the transfer of the obsolete industries from foreign firms has promoted China's economic growth. However, it leads to mass of pollution transfer and diffusion. In recent years, the Chinese government has instituted a series of laws and regulations to address environmental issues. For foreign firms operating in or wishing to enter into China, they should evaluate potential environmental risks beforehand and raise their awareness of environmental issues.

This study addresses two crucial questions. First, taking the dynamic capability perspective, we examine the effect of GEO on environmental and financial performance. Second, we assess the moderate effect of GTD and KTI upon the relationship between GEO and two types of firm performance. Our findings show that a firm-level strategic orientation (i.e., GEO) plays the role of a dynamic capability by efficiently and effectively initiating green activities, becoming proactive in capturing new opportunities, and taking risks in transforming the system. This study will provide an effective way for managers to achieve competitive advantages under complex conditions.