Corporate Entrepreneurship and Longer Term Financial Performance

Longer term financial performance and corporate entrepreneurship Hans Bruining, Rotterdam School of Management, the Netherlands Aart Willem Saly, Ernst & Young Advisory, the Netherlands Principal topic This study investigates the longer term effects of corporate entrepreneurship (CE) on financial firm performance indicators as return on assets (operating profitability), revenue (turnover) growth and return on equity. CE is measured by the dimensions of entrepreneurial orientation (EO): innovativeness, pro-activeness and risk-taking. Main research questions are: (1) does entrepreneurial intensity in established firms lead to longer term financial performance improvement? And (2) does the effect on longer term firm performance differ in times of economic growth and downturn? Research on EO supports positive short-term performance effects, while arguments on longer-term effects are less developed. This study aims to provide insight in the causality of the CE-performance relationship, the longer-term effects and the impact of the economic conditions on this relationship by using a longitudinal approach in a time frame that covers both economic growth and downturn. Method Using an extensive survey, we measured in 2000 the intensity of corporate entrepreneurship of 218 Dutch-based companies with >400fte from different sectors by using the entrepreneurial orientation dimensions ‘innovativeness’, ‘risk taking’ and ‘pro-activeness’. We then tested the correlation between entrepreneurial orientation and several financial performance indicators of 130 of these firms of which financial performance data was available for the years 2000-2013. From 65 firms we used financial information before they were taken over. We use both firm-specific survey data and annual industry data to test the moderating effects of the market environment and economic conditions and aim to repeat the survey to gather multiple CE-intensity in retrospect. Results and implications Preliminary testing indicates for the first three years a positive CE-financial performance relationship, supporting the hypothesis that CE has prolonged performance effects on ROA and ROE. After three years the CE intensity effect on performance disappears. However, the CE-performance relationship is highly dependent on the market situation. In dynamic environments correlation between CE intensity and financial performance is stronger. Firms with high CE-intensity tend to be more seriously affected by economic decline, but also recover faster, which is most clear around the financial crisis in 2008 and 2009. At last we found that failed firms show significant lower CE intensity than surviving firms. CONTACT: Hans Bruining; [email protected]; (T): +31104081795.