Entrepreneurial orientation, new product development and firm performance: the moderating role of legitimacy in Chinese high-tech SMEs

Purpose This paper examines the relationship of entrepreneurial orientation (EO), new product development (NPD), legitimacy (political and market) and firm performance (FP). The authors investigate how and when EO improves FP in high-tech small and medium-size enterprises (SMEs). Design/methodology/approach The paper formulates 5 hypotheses from literature review and theoretical deduction. The hypotheses are tested using ordinary least squares (OLS) regression with data collected from 219 randomly selected SMEs operating in high-tech industries of China. Findings The findings show that the mechanism of EO improve FP in high-tech SMEs by considering NPD as a mediator and legitimacy as moderators: (1) NPD plays a mediating role in the relationship between EO and FP, (2) market legitimacy (ML) positively moderating the effect of EO on FP and (3) both political legitimacy (PL) and ML positively moderating the effect of NPD on FP. Research limitations/implications For the limitations, the firms the authors' surveyed are SMEs that are not listed companies, which cause some limitations. For the implications, the authors propose some recommendations based on the findings to help Chinese SMEs to enhance performance. Originality/value The existing research on EO-FP linkage remains elusive findings. The paper reconciled the inconsistency by providing a nuanced mechanism of how EO promotes FP in high-tech SMEs of Chinese transition economy. By explain the important role of NPD in high-tech SMEs, the findings shed light on the mediators between EO and FP and the moderators. By emphasize the different role of ML and PL in determining EO-FP and NPD-FP linkages, the findings illustrate the peculiarity of contingency factors in a transition economy.