Mediating and moderating effects of entrepreneurial self-efficacy and absorptive capacity on the relationship among cognitive factors, strategic orientation and firm performance of small and medium scale hotel and restaurant industry in Sri Lanka

Abstract

The low performance of small and medium scale enterprises deprives their multiple contributions to the economies in their mobility towards the development. Though the issue has attracted the attention of many researchers, even today it is compelling due to the emerging global competition in the context of developing countries. The previous findings on the understanding of the complex relationships among factors influencing firm performance remain fragmented and unexplained. Therefore, the purpose of this study was to test a research model for investigating the effect of cognitive factors and strategic orientation on firm performance. The research model incorporated achievement motivation, personal goal setting, and mastery experience as cognitive variables while entrepreneurial orientation, market orientation, and learning orientation were configured as strategic orientation. The mediating role of self-efficacy and the moderating effect of absorptive capacity were also examined. The survey questionnaire translated into the native language was administered to a sample of 800 owner managers in the small and medium scale hotel and restaurant industry in Sri Lanka resulting in 350 usable responses. The stratified random sampling was the method used for the selection of the respondents to the sample. Data analysis was carried out by applying the structural equation modeling method. The findings widened the knowledge of the complex relationships among variables concerned indicating that the synergetic effect of cognitive variables and strategic orientation on firm performance is indispensable. Self-efficacy was found to be a significant mediating mechanism in the relationship between cognitive dispositions and firm performance. Strategic orientation of the organizations with higher level of absorptive capacity was found to be strongly related to firm performance. The results also extended the contextual validation of the research model in the developing countries