A curvilinear relationship between entrepreneurial orientation and firm performance: The moderating role of employees' psychological safety

Abstract

While many studies on the relationship between entrepreneurial orientation (EO) and firm performance suggested a considerable variation in size and direction of the relationship, our study tested a model that considered the drawbacks of a high EO. We identified that EO has a curvilinear relationship with firm performance and analyzed how the psychological safety of employees can mitigate the negative effects of high EO on firm performance. We tested our model on 157 enterprises comprising 1633 employees and 157 managers. After taking a longitudinal approach with objective financial outcome data, our results showed that EO has an inverted U-shaped effect in predicting firm performance and that employees' psychological safety moderates the relationship between EO and firm performance, mitigating the negative effects. This study has theoretical implications related to the potential negative impact of excessive EO and practical implications for companies in mitigating this drawback by increasing employees' psychological safety.