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

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.