Do Entrepreneurial SMEs Perform Better Because They are More Responsible?

Jean-Marie Courrent, Sonia Chasse & Waleed Omri

Executive summary:

Various empirical studies have shown that entrepreneurial orientation (EO) has a positive effect on firm performance (Wiklund and Shepherd 2005; Zahra and Garvis 2000). Nevertheless, as noted by Lumpkin and Dess (1996), there are two main reasons that the relationship between EO and performance is complex. On the one hand, a number of factors, such as strategies, can mediate this relationship (Lumpkin and Dess 1996; Schepers et al. 2014; Wiklund and Shepherd 2005). On the other hand, performance is a multi-dimensional concept that tends to become more complex, particularly because firms are increasingly incentivized to consider sustainable development (SD), i.e., non-financial considerations, in their decision making (Battisti and Perry 2011; Perrini et al. 2011). This study sought to analyze the effect of EO on SMEs’ performance through the implementation of sustainable practices. The present study thus considers sustainable practices—environmental practices, social practices in the workplace (SPW), and social practices in the community (SPC)—as three probable mediators in the relationship between EO and performance, which is considered in terms of its financial and non-financial dimensions. We seek to show to what extent small- and medium-sized enterprises’ (SMEs) sustainable practices are useful assets, which are supported by EO, to improve performance.

To the best of our knowledge, no empirical study has examined the extent to which entrepreneurial-oriented SMEs use CSR behavior to improve their performance. Therefore, this article seeks to study the relationships between EO, SMEs’ involvement in SD, and performance. We examine (i) the effect of EO on SMEs’ sustainable practices, (ii) the effects of these practices on performance, and (iii) the ways in which they mediate EO’s effect on performance. In doing so, this article should help to fill various gaps in the literature. First, beyond the generally established positive link between EO and performance, various factors have been shown to affect this relationship (Messersmith and Wales 2013; Rauch et al. 2009). Nevertheless, little research has examined these mediating variables, which limits our understanding of this relationship and the factors that influence performance (Kollmann and Stockmann 2014; Lechner and Gudmundsson 2014; Rauch et al. 2009), particularly when SD practices are implemented (Dixon-Fowler et al. 2013). Second, research into the link between SD practices and financial performance remains controversial (Hart and Dowell 2011), and the link between SD practices and non-financial performance has received very little attention to date. Third, as SMEs provide little information regarding their strategies and financial performance, they are less studied than large firms (Baumann- Pauly et al. 2013; Bos-Brouwers 2010), despite that SMEs are the backbone of the economy. Based on a survey of French SMEs that focuses on the link between SD and EO, this research helps to fill these gaps in the literature.

Using a structural equation modeling approach, data collected from 406 French SMEs were tested against the model. Our findings reveal that EO has a positive impact on the implementation of sustainable practices and that SPW partially mediate the link between EO and performance. Taken together, these findings suggest that EO plays a role in indirectly promoting performance by enhancing certain human resource management practices.

The essential practical implications concern the means of inducing SMEs to commit to actions that contribute to SD. There are many obstacles to commitment, and they are often found in the ‘‘why’’ and ‘‘how’’ of such commitment (Battisti and Perry 2011; Bos-Brouwers 2010; Roxas and Lindsay 2012). Our research essentially provides a response to the ‘‘how’’ question; encouraging the implementation of entrepreneurial organization in SMEs appears to be a pertinent means of more easily implementing sustainable practices, which are often considered innovative, risky, and proactive, in the three environmental, SPW and SPC dimensions.