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Financial Performance Impacts of Corporate Entrepreneurship in Emerging

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European Journal of Economics, Finance and Administrative Sciences
ISSN 1450-2275 Issue 12 (2008)
© EuroJournals, Inc. 2008
http://www.eurojournalsn.com

Financial Performance Impacts of Corporate Entrepreneurship

in Emerging Markets: A Case of Turkey*

Bora Aktan
Assistant Professor of Finance
Faculty of Economics and Administrative Sciences, Yasar University, Izmir, Turkey
Tel: +90-232-4115000; Fax: +90-232-4115020
E-mail: bora.aktan@yasar.edu.tr

Cagri Bulut
Assistant Professor of Management
Faculty of Economics and Administrative Sciences, Yasar University, Izmir, Turkey
Tel: +90-232-4115000; Fax: +90-232-4115020
E-mail: cagri.bulut@yasar.edu.tr

Abstract
The aim of this study is to examine the effects of four sub-dimensions of corporate
entrepreneurship (hereafter CE) on firms’ financial performance in Turkey. The research of
this study has been conducted from 2032 respondents of 312 firms which are largely active
in Turkey as an emerging economy. Concerning research data have been gathered by the
SOBAG Project 104K117, which is supported by The Scientific and Technological
Research Council of Turkey. To test the financial performance effects of CE, the scales for
the dimensions of CE and financial performance have been adopted from the existing
literature. A series of reliability and validity tests are conducted for the measurement of the
scales. Confirmatory factor analysis and multiple regression analysis have been conducted
to test the hypotheses. The results of this research will provide guidelines to help investors,
managers, and also academicians to comprehend the importance of CE well on the way to
create financially successful firm performance and sustain it in developing countries.

Keywords: Financial Performance, Corporate Entrepreneurship, Risk-Taking,

Competitive Aggressiveness, Innovativeness, Proactiveness.

1. Introduction
The studies on firms’ corporate entrepreneurship (hereafter CE) have grown rapidly in the last two
decades. Increasing intensity of competitiveness in both local and global markets has revealed the
significant role of entrepreneurship in established companies to develop a competitive advantage and
sustain it (Zahra et al. 2000). CE is conceptualized within the combinations of proactiveness, risk
taking, innovativeness, and competitive aggressiveness (Covin and Covin 1990; Covin and Slevin
1991; Lumpkin and Dess 1996; Birkinshaw 1999; Covin and Miles 1999; Pittaway 2001; Dess,
Ireland, Zahra, Floyd, Janney and Lane 2003).

* The authors are grateful to The Scientific and Technological Research Council of Turkey (TUBITAK), SOBAG Project 104K117 for the use of the
related empirical data on CE and Financial Performance, and would also like to thank to the review committee of the 35th Academy of International
Business Conference on “Challenging in International Business”, held at Portsmouth Business School, Portsmouth, UK, 2008 for their immense
contribution.
70 European Journal of Economics, Finance And Administrative Sciences - Issue 12 (2008)

The studies on CE in developed economies particularly after 1990’s have demonstrated

entrepreneurial activities within the firms provide successful firm performance (i.e. Pinchot 1985;
Zahra and Covin 1995; Barringer and Bluedorn 1999; Lumpkin and Dess 2001; Hornsby, Kuratko and
Zahra 2002). Flexible and competitive organizational structure and firm culture can be obtained by
strategic orientations– i.e. CE- to deal against competition and high market dynamism, creation of
dynamic. However, the studies on strategic orientations, particularly on CE, have been neglected in
developing nations, such as Turkey. This study investigates CE with its multi-dimensional structure as
congruent with the literature in a developing market with a case of Turkey: (1) Proactiveness, (2) Risk
Taking, (3) Innovativeness, and (4) Competitive Aggressiveness (Lumpkin and Dess 1996, 2001;
Barringer and Bluedorn 1999; Pittaway 2001).
In developing countries, external environmental conditions, such as the competitive effects of
globalization and the frequent financial crises, force national firms to identify the opportunities and
threats to be more entrepreneurial, adaptive, and innovative to sustain their competitiveness (Mintzberg
1973; Miller and Friesen 1978; Slater and Narver 1994; Appiah-Adu and Singh 1998; Barringer and
Bluedorn 1999). Increasing intensity of competitiveness in local and global markets, financial
performance impacts of CE for national firms are becoming critical to create a national competitive
advantage and sustain it. Both scholars and practitioners remain interested in studying and better
understanding corporate entrepreneurship and its consequences (Dess, Ireland, Zahra, Floyd, Janney
and Lane 2003). The aim of this study is to examine the effects of four sub-dimensions of CE on firms’
financial performance within a developing country, Turkey. This study consists of six sections; after
this introduction the brief literature of financial performance and the dimensions of CE have been
discussed. Hypotheses of the study have been developed within the discussion of the literature in the
third section. The data collection procedure, sample and methodology of the research have been
presented within the fourth section. Analysis and findings have been presented in the fifth section. In
the final section, some useful ideas have been suggested to particularly both practitioners and
academicians who are or willing to be active in emerging economies.

2. Financial Performance and Corporate Entrepreneurship

2.1. Financial Performance
A firm’s finances and operations are integrally connected1. Studies have shown that the concept of
corporate performance is multidimensional in nature (Venkatraman and Ramanujam 1986). Within
corporate performance, the focus has always been on the financial side, hence it is traditionally defined
in financial terms. In addition, investors, shareholders and other stakeholders are interested in to get
information about the firms’ performance conditions frequently. Financial information (ie. return on
investments, return on equity, growth of sales, profitability etc.) is the most extensively explicit and
valid information among the other performance dimensions. On the other hand financial information
should also be available particularly for regulatory and supervisory bodies for auditing the certain
fiscal issues and taxations. The extent to which this financial information should be disclosed is
dependent upon the firms’ characters -i.e. being private or public character of a firm, its size, or the
company’s being listed or unlisted.
Financial performance refers as a firm’s ability to generate new resources from day to day
operations over a given period of time2. The financial performance measures can be divided into two
major types3: (1) traditional measures based on accounting/financial data (i.e. the effect of actions on
one year’s profits, ROI, ROE, etc.) which reflect a firm’s past performance; and (2) market-based

1
In this study, the terms “firm”, “company”, “corporation” and “organization” used as synonyms.
2
According to the Accounting Standards Board “statement of financial performance” combines the statement of total recognized gains and loses and the
P/L account and the statement is divided into three sections: (i) operating; (ii) financing and treasury; and (iii) other gains and losses. See ASB (2000)
FRED 22, Revision of FRS 3, “Reporting Financial Performance” p.3, London. Available at the following website;
http://frc.org.uk/images/uploaded/documents/FRED%2022.pdf (28.12.2007)
3
For a broad and excellent discussion on financial performance measurement methods see Peterson and Peterson (1996). Corporate Performance and
Measures of Value Added, The Research Foundation of The Institute of Chartered Financial Analysts: Charlottesville
71 European Journal of Economics, Finance And Administrative Sciences - Issue 12 (2008)

measures derived from stock market values (i.e. Stern Stewart & Co.’s Economic Value Added [EVA]
and Market Value Added [MVA] approaches) which are based on valuation principles4. To test the
financial performance impacts of CE, the performance measurement scale of this study has been
adopted from the frequently used traditional financial criteria and these criteria are presented in the
data and methodology section.
Successful entrepreneurial accomplishments will inevitably affect the firms’ financial
performance in the long term, barely in the short term; there might be no association among the CE
climate factors and firms’ financial performance criteria due to project investments and firms’ internal
resource usages or possible losses (Hayton 2005). Thus, the first signals of successful entrepreneurial
accomplishments may be obtained from marketplace, for example, increase in sales and market share.
Then, in the long run, these improvements in the competitive position in the marketplace may create
higher financial returns as the outcomes of CE. Therefore, more than one criterion - i.e. sales growth,
market share growth, return on assets and profitability- has been taken into account to reveal the
association between CE and financial performance.

2.2. Corporate Entrepreneurship

Corporate Entrepreneurship has become an important area of management research for the last three
decades as a strategic orientation to overcome external adaptation problems firms face in their search
for sustained competitive advantage in the global competition (Khandwalla 1977; Miller and Friesen
1978; 1982; Drucker, 1985; Schuler 1986; Covin and Slevin 1989; Covin and Covin 1990; Zahra and
Covin 1995; Hitt et al. 2001; Antoncic and Hisrich 2001; Pittaway 2001; Kuratko, Ireland and Hornsby
2001; Dess, Ireland, Zahra, Floyd, Janney and Lane 2003).
The literature on CE has been grown mostly by theoretical studies. In those studies the autors
tried to clarify the content of CE by defining it, as the set of organizational policies, processes, and
characteristics whereby organizations try to actualize efforts for pioneering innovative ideas in its
products, processes, structures and markets (Pinchot 1985; Stevenson and Jarillo 1990; Stopford and
Baden-Fuller 1994; Zahra and Covin 1995; Lumpkin and Dess 1996; Wiklund 1999; Hitt, Ireland,
Camp and Sexton 2001). On the other hand, the recent studies on CE are mostly field study try to
explore the structure of CE. Most of these studies have revealed that CE has a multidimensional
structure. The most frequently found out and tested with hypotheses dimensions of CE are risk taking,
innovativeness, proactiveness and competitive aggressiveness (Lumpkin and Dess 1996, 2001; Sharma
and Chrisman 1999; Dess, Ireland, Zahra, Floyd, Janney and Lane 2003), yet their associations with
corporate performance have not been sufficiently demonstrated (Zahra 1991; Antoncic and Hisrich
2004; Dess and Lumpkin 2005). Therefore, the dimension of CE will be debated along the corporate
financial performance within the following section.

3. Hypothesis Development
3.1. Innovativeness and Financial Performance
Drucker (1985) argues that innovation is at the heart of entrepreneurship. An organization-wide
entrepreneurial spirit to cope with and benefit from rapidly changing marketplace conditions would be
possible only if suitable innovative undertakings are established. When these organizational initiatives
are supported and coordinated within the organization, the outcomes will be gained as sustainable
competitive advantage through innovation in the form of new products, services, and processes, or in a
combination of these (Schumpeter 1934; Quinn 1985; Brentani 2001; Hornsby, Kuratko and Zahra
2002). Therefore, our first hypothesis is as follows:

4
In the management accounting area, the recognition of the limitations of financial performance indicators has resulted in the search for complementary
indicators, such as the “balanced scorecard” which complements the financial measures with operational measures on customer satisfaction, internal
business process and the firm’s innovation, learning and improvements activities-operational measures which are the drivers of future financial
performance (see e.g. Kaplan and Norton 1992, 1993, 1996, 2000 and also Broadbent and Cullen 2005. pp 310-13).
72 European Journal of Economics, Finance And Administrative Sciences - Issue 12 (2008)

H1: The innovativeness dimension of CE has positive effects on financial performance.

3.2. Risk Taking and Financial Performance

Entrepreneurial and non-entrepreneurial behaviours are clearly distinguished with the risk taking
features of the individuals and organizations. In this sense corporate risk taking is conceptualized as the
organizational orientations to go for new initiatives for the purpose of corporate profit and growth by
tolerating the possible calculated loses (Sitkin and Pablo 1992; Keh, Foo and Lim 2002). Conservative
and risk-averse attitudes of firms will cause a decrease in market share and even a loss of competitive
position (Porter 1980; Barringer and Bluedorn 1999; Kanter 2006). On the other hand, globalization of
the competition has been forcing firms to take new positions to stay competitive (Porter 1980).
Successful firms either identify new markets or introduce new services/products to the existing markets
or the combinations of two by taking risks to fulfil the market opportunities. Therefore, to be
outperformed and stayed competitive is directly related to a firm’s intensity to take calculated risks,
and our second hypothesis is as follows:
H2: The risk taking dimension of CE has positive effects on financial performance.

3.3. Proactiveness and Financial Performance

The main two challenges of new borderless competitive milieu are the shortened product life cycles
and sensitive demand for the new products. To deal and survive within this new economic
environment, firms try to make the first-move to gain competitive advantage (Khandwalla 1977; Miller
1983; Barringer and Bluedorn 1999). Particularly, in emerging and transition economies, being the
leader is more beneficial than wait and see strategies. Following the competitors cause to fight for
some pie in less market share against the first-mover (Narver, Slater and MacLachlan 2004; Olson,
Slater and Hult 2005). Instead of dealing in saturated markets, being fast and the first by finding out the
new demands or introducing new product/services frequently helps firms to take new position on the
way of sustainable competitive advantage (Porter 1980). Therefore, our third hypothesis is as follows:
H3: The proactiveness dimension of CE has positive effects on financial performance.

3.4. Competitive Aggressiveness and Financial Performance

Firms which could not take a new position against the increased intensity of the competition and/or
became late to enter into the growing markets, compute the opportunity costs and try to make
alternative strategies to survive or to remain in competition (Birkinshaw, Hood and Young 2005).
Firms which decide to gain share from those markets, adopt competitive aggressive behaviors by
employing marketing strategies such as competing on price, increasing promotion and/or combating
for the distribution channels or imitating the competitors’ actions and/or products (Dess, Lumpkin, and
Eisner 2007). By acting aggressive via marketing tools, they force relatively stronger competitors to
make entry barriers for the current markets. From the two points of view –either new entrants or
existing firms- the purposes of these bold and aggressive behaviors are initially to remain in
competition and then to make profit by fulfilling the opportunities of markets. Therefore our fourth and
last hypothesis is as follows:
H4: The competitive aggressiveness dimension of CE has positive effects on financial performance.
73 European Journal of Economics, Finance And Administrative Sciences - Issue 12 (2008)
Figure 1: Hypothesized research model

ENTREPRENEURIAL ORIENTATION

- Innovativeness H1, H2, FINANCIAL

- Risk taking
- Proactiveness PERFORMANCE
H3, H4
-Competitive Aggressiveness

4. Data and Methodology

4.1. Data Collecting Procedure and Sample
The research of this study has been conducted by mail-survey from 2032 respondents over 312 firms
which are operating in Turkey. Initially 11.101 firms have been selected from the web site of The
Union of Chambers and Commodity Exchanges of Turkey (www.tobb.org.tr). To call for the research,
invitation letters have been sent to these firms. 1251 of the invitation letter have not been reached to
destination because of the addresses were either wrong or the company has moved from the address.
Managers of 987 firms have been responded with notification of acceptance for their participation to
our research. Therefore, the response rate for invitation is approximately 10%. According to number of
employees firms have been categorized as micro, small, medium, large and very large. 10.000 surveys
have been rationed to this classification (i.e. 3 surveys for micro, 35 surveys for the very large
enterprises) and surveys have been sent with a free to post envelope to the previously responded
managers to be distributed to the members of these 987 firms. After a couple of months 2032
employees over 312 firms have sent back their surveys. Consequently the sample of the study is 2032
employees over 312 firms.
Demographics of the respondents have shown that 70.5% of them are male. 6,1% owners or
partners, 12,4% top managers, 33,8% middle managers, 33,6% are white collar workers, and 14,2% are
blue collar workers. 25% of them have tenure less than 2 years, 25% of them have tenure from 2 to 5
years, 25% of them have tenure from 5 to 10 years, and the rest of them have more than 10 years
tenure. Average age of the respondents is 34.9 (S.D.: 9.8).

4.2. Measures
All constructs were measured using existing scales. All items were measured on a five point Likert-
type scale where 1= strongly disagree and 5= strongly agree. Mean scale scores were calculated for all
measures. We used the Cronbach’s Alpha to estimate reliability for scales. CE dimensions were
measured with 18 items, 3 of them adapted from Barringer and Bluedorn (1999), 3 of them Hornsby,
Kuratko and Zahra (2002), 3 of them Miller (1983), 3 of them from Calantone, Cavusgil and Zhao
(2002), 3 of them adapted from Antoncic and Hisrich (2001) and the rest of the three are adapted from
Dess, Lumpkin and Covin (1997), and Naman and Slevin (1993). The scale of financial performance
has been created from the existing literature and chosen among the most frequently used financial
criteria, which are return on sales, return on assets, and market share growth.

5. Analysis and Findings

5.1. Reliability tests, Factor Analysis and Correlations
The scales were submitted to confirmatory factor analysis via EQS-6.1 and satisfactory results were
obtained (X2 (211) =613.80; GFI=.97; CFI=.99; NFI=.98). Factor loadings are depicted in Table 1.
74 European Journal of Economics, Finance And Administrative Sciences - Issue 12 (2008)
Table 1: Factor Loadings for Corporate Entrepreneurship Dimensions and Financial Performance Items

Items Factor Loadings

Riskiness
Relative to our competitors, our company has higher propensity to take risks .634**
Our company has shown a great deal of tolerance for high risk projects .708**
In general, the top managers of my firm favour, a bold, aggressive posture in order to maximize the
.522**
probability of exploiting potential when faced with uncertainty
Most people in this organization are willing to take risks .554**
This organization supports many small and experimental projects realizing that some will
.739**
undoubtedly fail
The term “risk taker” is considered a positive attribute for people .678**
People are often encouraged to take calculated risks with new ideas around here .792**
Proactiveness
Typically initiates actions to which competitors then respond .778**
In dealing with its competitors, my firm has a strong tendency to be ahead of other competitors in
.816**
introducing novel idea or products
Is very often the first firm to introduce new products/ services operating technologies, etc .859**
Our firm shapes the environment by introducing new products, technologies, administrative
.883**
techniques than merely react
Competitive Aggressiveness
Owing to the nature of the environment, bold, wide ranging acts are necessary to achieve the firm’s
.860**
objectives
Typically adopts a very competitive, ‘undo-the-competitor’ posture .576**
My firm has a strong tendency to increase the market share by reducing the competitors’ .513**
Innovativeness
Our company frequently tries out new ideas .845**
Our company is creative in its methods of operation .806**
Our company seeks out new ways to do things .757**
Company’s emphasis on developing new products .847**
Company’s spending on new product development activities .828**
Investment in developing proprietary Technologies .812**
Financial Performance
Market share growth .982**
Return on sales .815**
Return on assets .816**
Profitability .789**
** p<.01

The results of CFA also give evidence for convergent validity of the constructs regarding to
significantly (p<.01) loadings of all the items to respective latent factors. Moreover, principle
component analyses (PCA) have been employed to test the discriminant validity. PCA have shown that
all constructs have been extracted to five respected factors of CFA with the cut point of Eigen value 1.
To test the unidimensionality of the scales, each construct have been submitted to PCA individually
and resulted with one factor. These results gave evidence for the validity of the scales.
Cronbach’s alpha test is conducted for each of the construct for the reliability analyses. The
results of the reliability test have been presented in Table 2; all the alpha coefficients are bigger than
the expected reference value of .70. In addition to validity and reliability analyses, standard deviations
and means of each construct have been calculated and found sufficient variance for further analyses.
The results have demonstrated the factor structure is valid and reliable to test the hypotheses of the
research.
Before testing the hypotheses of the study, one-to-one relations among the dimensions of CE
and financial performance have been investigated via correlation analysis. The findings of correlations,
reliability analyses and relevant descriptive statistics have been presented in Table 2. As can be seen in
Table 2, all the correlation coefficients across the CE dimensions and the financial performance
components are positive and significant.
75 European Journal of Economics, Finance And Administrative Sciences - Issue 12 (2008)
Table 2: Alpha Reliabilities, Descriptive Statistics and Correlation Analyses

Aggressiveness
Innovativeness

Proactiveness
Risk Taking

Competitive
Mean

SD
α
Innovativeness .90 3.86 .781 1
Risk Taking .87 3.04 .809 .446** 1
Proactiveness .91 3.64 .862 .685** .519** 1
Competitive Aggressiveness .76 3.25 .944 .426** .417** .503**
1
Financial Performance .90 3.57 .856 .394** .286** .381**
.283**
** p<.01
α = Cronbach’s Alpha; SD = Standard Deviation

5.2. Test of Hypotheses

Correlation analyses have given some evidence of individual effects of CE dimensions on financial
performance as simple regression analyses. However to test the multiple effects of CE dimension on
financial performance a multiple regression analysis has been conducted. The result of the multiple
regression analyses has been summarized in Table 3. The regression model found significant with the
evidence of F statistics (F: 112.384; p<.01) and independent factors –EO dimensions- obtained
sufficient variance on financial performance (R2: .19). The findings of the analysis demonstrated that
all the dimensions of CE have positive and significant effects on financial performance. According to
these results four of the research hypotheses have been supported. In other words all the dimensions of
CE have positive and significant effects on financial performance (see Figure.2).

Table 3: Effects of CE Dimensions on Financial Performance

Standardized Beta T P
Innovativeness ,224 7,838 ,000
Risk Taking ,075 3,039 ,002
Proactiveness ,147 4,773 ,000
Competitive Aggressiveness ,081 3,339 ,001
2
F=112.384 R =0,188 p= 0,000

The results of this empirical study demonstrate the importance financial performance impacts
of firms’ CE in developing economies with the case of Turkey. Thus, the results of the comprehensive
field research provide guidelines to help managers and entrepreneurs as well as academicians to better
understand the importance of entrepreneurship within the firms and its effects on their financial
performance. The proposed empirical model based on the regression analysis has been supported
(Figure 2).
76 European Journal of Economics, Finance And Administrative Sciences - Issue 12 (2008)
Figure 2: The Research Model and Findings

Innovativeness

β: .224 **

β: .075** β: .081**
Risk Taking Financial Competitive
Performance Aggressiveness

β: .147**

** p<.01
Proactiveness

6. Final Remarks
Entrepreneurship process represents a growth-oriented outlook where great leaders are born from. It
entails an innovative and proactive approach to challenges, tasks, needs, obstacles, and opportunities
by commencing with nothing but a daring idea and great confidence, entrepreneurs assemble and
organize the resources and the sweat in order to attain organizational goals. Obviously, it is an act of
winning the game of competition. From the firms’ standpoint, on the other hand, the purpose of each
firm is to create value not only for its shareholders but also for its stakeholders in the today’s modern
management era (Drucker, 1985).
Consequently, organizations can be characterized in terms of their overall strategic orientation.
A key aspect of this orientation concerns entrepreneurship. Organizations distinguish significantly in
terms of the level of CE that they display.
In Turkey as an emerging economy, many firms are entrepreneurial. Achieving CE to provide
much more vitality in the economy is not something that management can simply decide to do. It
necessitates considerable time and investment, and there must be continual reinforcement. Because of
CE represents an attitudinal and behavioural orientation that should pervade all aspects of an
organization. Accordingly, to be sustainable, the entrepreneurial spirit should be integrated into the
mission, objectives, strategies, structure, processes, and values of the firm for an impressive
performance.
Our research has revealed valuable findings for academicians, researchers and management
executives among professional bodies from private to public particularly in developing economies.
Ceteris paribus, each dimension of EO -innovativeness, risk taking, proactiveness and competitive
aggressiveness- have positively correlated with financial performance. In other words, all dimensions
of CE separately have positive effects and significantly associated with financial performance. To test
the hypotheses, a multiple regression analysis has been conducted and the results demonstrated that CE
has positive effects on the firms’ financial performance. In addition, we wish to accentuate that the
effectiveness of this linkage depends on how well integrated entrepreneurship is into the mission,
objectives, strategies, structures, operations, and certainly culture of the firm (Morris 1998). The key
responsibility of management is determining the appropriate degree and amount of CE for the
organization overall, and for each main functional area within the organization’s operations.
Besides, CE can be investigated within the organizational learning concept for further studies –
i.e. entrepreneurial learning- which is very important to find out the possible interactions of the
77 European Journal of Economics, Finance And Administrative Sciences - Issue 12 (2008)

dimensions. Additionally, the effects of CE among other firm performance criteria (i.e. innovative
performance, marketing performance, operational performance, etc.) will reveal important findings for
advance researches in the short run.

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