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2012 Cambridge Business & Economics Conference ISBN : 9780974211428

The Moderating Effect of Environment on the Relationship Between Self-Efficacy And

Entrepreneurial Orientation Among Malay SMEs in Manufacturing Industry

By

Rohani Mohda

Faculty of Business Management, Universiti Teknologi MARA,

Malaysia(60-0132069766, [email protected]),

Khulida Kirana Yahyab

College of Business, Universiti Utara Malaysia,

Malaysia(60-0134889190, [email protected]),

Badrul Hisham Kamaruddinc

Faculty of Business Management, Universiti Teknologi MARA,

Malaysia(60-0192198346, [email protected])

a Corresponding author

June 27-28, 2012Cambridge, UK 1

mailto:[email protected]




The Moderating Effect of Environment on the Relationship Between Self-Efficacy And

Entrepreneurial Orientation Among Malay SMEs in Manufacturing Industry

ABSTRACT

This study examined the effect of environment on the relationship between internal drive of

Malay owner managers and their entrepreneurial orientation. The sample comprised of 162

Malay-owned small scale enterprises in the manufacturing industry, located the whole of

Malaysia. We adopted the instruments of past studies and improved construct validity and

reliability of these instruments by using Rasch Measurement Model. The moderated multiple

regression analysis was employed to test the moderation effect of hostility. The findings

indicated that the relationship between self efficacy and entrepreneurial orientation was not

moderated by the environment. In other words, self efficacy was found to affect

entrepreneurial orientation regardless of how good or bad the environment was perceived by

the owner managers. This shows the important role of self-efficacy in making owner

managers to be entrepreneurial or less. This explains why the Malay SMEs do not improve by

as much as the incentives given to them by the government. Hence, the government needs to

formulate strategies that could improve the self-efficacy of Malay owner managers. Only

then would they have confidence with their entrepreneurial abilities to sustain good

performance in the long run.

Key words: Environment, Self-efficacy, Entrepreneurial Orientations, Malay SMEs

Acknowledgement

We are greatly indebted to the Training Division of the Public Service Department of

Malaysia, KPT for providing us the financial support throughout this study.



INTRODUCTION

Research on whether entrepreneurs are more entrepreneurial than non-entrepreneurs are

enormous. But research on what drives them to be entrepreneurial is not many. Rauch and

Frese (2007) believe that entrepreneurs are driven by certain motivational forces before any

behavior is chosen. However, this behavior is chosen based on certain circumstances

(Bandura, 1989). For instance, entrepreneurs who have high internal motivation are found to

show entrepreneurial behavior only under favorable environment. In fact, there are two

conflicting views regarding the influence of environment on self-efficacy level which inturn

affect business or entrepreneurial orientation. For instance, in the work of Shane et al. (2003),

Green et al. (2008), Rauch and Frese (2007), they found that these owner managers whose

motivation were high, became more entrepreneurial only in supportive environment. On the

other hand, Bandura (1989) found that people with high self efficacy become more

entrepreneurial when environment is hostile or less supportive. For this reason, based on the

latter, this study was conducted to see if Bandura’s (1989) theory of self efficacy was true.

Besides, there were other issues that stimulated the conduct of this study. This explained

next.

First, although there are numerous Malaysian studies on examining the motivation to

start business (Mansor & Che Mat., 2010; Mansor, 2005; S. Ali et al., 2004; M. Dali et al.,

2009), studies on owner managers’ motivational drive to sustain business are limited. Past

studies on motivational drives mainly emphasized on achievement motivation (McClelland,

1961, Shane et al, 2003). Unfortunately, self-efficacy, important motivational variable to

explain behavior, has not been emphasized, particularly in Malaysia setting.

Second, the debate as to whether personological characteristics of SMEs (the dancer)

are more important than the process of entrepreneurship (the dance) or vise-versa, would

never end if these two were not integrated and investigated in a single study. Nevertheless,


the findings of more recent studies (Chattopadhyay & Ghosh, 2008; Kumar, 2007; Baron,

2004; Gatner, 1988) suggest that it is critical to combine both approaches (personalogical

characteristics and business environment) in order to understand entrepreneurial orientation

and success. Hence, the need to incorporate business environment into the study of SMEs and

entrepreneurship is important.

Third, although the literature suggests that business environment can moderate the

relationship between entrepreneurial orientation and performance (Covin & Slevin, 1987;

Zahra, 1996; Dess et al. 1997; Green, Covin and Slevin, 2008; Awang et al., 2010), very few

studies (Chen et al., 1998; Andreas et al., 1999) have actually investigated the moderating

effect of business environment in explaining the relationship between internal motivation and

entrepreneurial orientation. Hence, empirical studies in this area are lacking. Moreover, many

psychologists argue that the interaction between individual motivation and situational

condition predicts behavior better than any one of them in isolation (Bandura, 1989). As

reported by Rauch and Frese (2007), most research studies ignore potential mediating process

and situational contingencies. Thus, this study is expected to fill this gap.

LITERATURE REVIEW

Self-efficacy

Self-efficacy (SE) is defined as an individual’s belief (or confidence) about his or her abilities

to mobilize motivation, cognitive resources, and courses of action needed to successfully

execute a specific task within a given context (Bandura, 1997; Stajkovic and Luthans, 1998).

Other concepts similar to self-efficacy found by Mitchell and Daniels (2003) which have

been used by other research scholars include personal agency belief, personal efficacy,

capacity belief, and perceived competence.


Self-efficacy was seen as task-specific self-confidence by Shane et. al (2003). It was

claimed by them to be a robust predictor of an individual’s performance in a task s/he is

confident with. It was also believed to be an important variable that explains why people of

equal ability perform differently. For example, an individual with high self-efficacy for a

given task will exert more effort for a greater length of time, persist through set backs, set and

accept higher goals, and develop better plans and strategies for the task.

A person with high self-efficacy is also believed to regard a negative feedback in a

positive manner and use that feedback to improve his or her performance. These motivational

attributes are described by Shane et. al. (2003) as important to the entrepreneurial process.

This is because they believe that business situations are often ambiguous, so effort,

persistence, and planning are important.

In fact, self-efficacy is a useful concept for explaining human behavior. According to

Chen et al. (2004), self-efficacy plays an influential role in determining an individual's

choice, level of effort, and perseverance. Simply stated, individuals with high self-efficacy

for a certain task are more likely to pursue and then persist in that task compared to those

who have low self-efficacy (Bandura, 1997).

According to Bandura (1994), people with strong sense of self-efficacy would: 1)

view challenging problems as tasks to be mastered; 2) have deep interest in the activities that

they participate; 3) form a strong sense of commitment in the activities; and 4) recover

quickly from setbacks and disappointment. However, people with weak self-efficacy would:

1) avoid challenging tasks; 2) believe that difficult tasks and situations are beyond their

capabilities; 3) focus on personal failings and negative outcomes; and 4) quickly lose

confidence in personal abilities.

The above scenario gave an interpretation that self-efficacy plays significant role in

entrepreneurial orientations. Entrepreneurs with strong self-efficacy would be stronger,


showed strong behavior in difficult situation or weak environment. This scenario also

signaled the moderation role of environment on the relationship between self-efficacy and

entrepreneurial orientations.

Entrepreneurial orientation

Lumpkin and Dess (1996) refer to entrepreneurial orientation (EO) as process, practices,

decision making activities that lead to new entry. They defined EO as a firm’s strategic

orientation portraying entrepreneurial decision-making styles, methods and practices.

Similarly, Burgelman (1983) described it to be closely linked to strategic management and

strategic decision making process.

Factors influencing entrepreneurial orientation

As in Kotey and Meredith (1997), the three basic factors that influence strategic orientations

of an organization that were identified by Thompson and Strickland (1993) were

management, environmental variables and firm’s internal sources. The degree to which

management and environmental variables influence entrepreneurial orientation has been

debated by a number of research scholars. As stated by Montanari (1978) that the greater the

influence of environmental variables the less will be the impact of management on

entrepreneurial orientation. In dynamic and changing environments, SME owner managers

are said to have the greatest influence on entrepreneurial orientation.

On the other hand, Porter (1991) argued that management would always have some

influence on strategic orientations regardless of the impact of the environment. Porter

explained that over time, managers can create and sustain competitive advantage by

continuous innovation, improvement, and upgrading of resources. This seems to support

Bandura’s self-efficacy theory in that an individual whose self efficacy is high would show

stronger behavior in weak environment. The environment, which acts as a major influence on


entrepreneurs have been widely discussed in the literature. The most recent evidence is the

study of Morris and Schendihutte (2005) who found that entrepreneurs are more

entrepreneurial in a supportive environment. However, this contradicted the theory of self

efficacy.

Entrepreneurial orientation dimensions

Entrepreneurial orientation (EO) has been operationalised in a number of ways in the

entrepreneurship literature. Drawing on a review of existing studies, Wiklund (1998:224), for

example, provides some of the dimensions of entrepreneurial orientation, as follows:

“… points to a number of actions that can be regarded as entrepreneurial, i.e. the development of new products and markets, proactive behavior, risk-taking, the start-up of new organizations and the growth of an existing organization.”

On another perspective, scale development research on the EO construct (Lumpkin,

1996) revealed a set of five distinct dimensions:

1) Autonomy – the independent action of an individual or a team who generates an

idea or vision and carrying it through to completion.

2) Innovativeness – a firm’s tendency to engage in and support new ideas, novelty,

experimentation and creative process as these might result in the generation of

new products, services, or technological processes.

3) Risk taking – incurring heavy debt or making large resource commitments as a

result of seizing opportunities in the market place in the interest of high returns.

4) Proactiveness – taking initiatives by anticipating and pursuing new opportunities

and by participating in emerging markets.

5) Competitive aggressiveness – a firm’s natural tendency to directly and intensely

challenge its competitors to achieve entry or improve its current positioning to

outperform industry rivals in the marketplace.


This study has excluded competitive aggressiveness from the five dimensions of

entrepreneurial orientations identified by Lumpkin and Dess. Instead, this study employed

only 4 dimensions of entrepreneurial orientations, namely autonomy; proactiveness;

innovativeness; and risk taking. This is because proactiveness was believed to explain

competitiveness (Covin & Slevin, 1989; Weaver et al., 2001; Okhomina, 2010).

As reported by Weaver et al. (2001), those dimensions have been adapted by

numerous research scholars in the last 15 years like Zahra, 1998; Covin and Slevin, 1989;

Dess, Lumpkin and Covin, 1997; Dickson and Weaver, 1997; and Crant, 2000. They are

linked not only to personal values, but to other variables as well like strategy formation;

marketing orientation; strategic alliance formation; environment; performance etc..

The measure of EO most commonly employed in studies by those mentioned scholars

was developed by Covin and Slevin (1989). This scale which consists of three dimensions –

innovation, proactiveness and risk taking, has been adopted by numerous studies (e.g.,

Dickson and Weaver, 1997; Naman and Slevin, 1993; Steensma, Marino, Weaver, and

Dickson, 2000). Later, Lumpkin and Dess (1996) added two other dimensions, namely

competitive aggressiveness, and autonomy.

With regards to the relationships among the dimensions, Miller (1983) and Covin and

Slevin (1989) suggested EO as a unidimensional construct. These scholars insisted that the

three dimensions be combined into a single scale. On the other hand, Lumpkin and Dess

(1996), Lumpkin and Erdorgan (2004) and Kreiser et al. (2002) claimed that the dimensions

of EO can vary independently of one another. This argument is based on the point that each

dimension represents a different and independent aspect which might have responded to

performance differently. Moreover, these scholars argued that some SMEs may be cautious

and risk averse under one circumstance and risk taking in another. The works of Lumpkin

and Dess (1997) and (1998), and Lumpkin and Erdogan (2004) provide theoretical support


and empirical evidence that the dimensions of EO may vary independently. This study

adopted Covin and Slevin’s (1989) view, but adopted Lumpkin and Dess’s (1996) construct

which is widely accepted and simple that owner managers find it easier to respond or answer.

Business environment

Business environment is defined by George and Jones (2002) as the forces affecting the

supply of resources surrounding an organization. Athey (1982) described it as the aggregate

uncontrollable factors that have an influence on the effectiveness of a system. Studying the

impact of business environment on SMEs is not easy and it takes a long period before an

analysis can to be conducted unless if the environment is measured according to the

perception of owner managers of SMEs (Green, Covin, Slevin, 2008). Subsequently, Green,

Covin and Slevin (2008) operationally defined business environment as the environmental

forces within which a firm carries out its primary business operation as perceived by a

business owner or manager to be either munificent/hostility and dynamism. Munificent

environment is described as low hostility environment.

In relation to the above, this study was conducted in order to understand the effect of

environment on entrepreneurial orientation. Naffziger et al. (1994) claimed that since an

entrepreneur creates a firm to exist and competes in a business environment, whether on a

local, regional, or national basis, an examination of the relevant environment should be part

of the decision-making process. They highlighted several factors in the business environment

that may influence one to undertake a new venture: societal attitude towards starting a

business, societal attitude towards business in general, the economic climate of the market,

and the availability of accessible funds. A combination of these factors was referred to as

supportive environment by Okhomina (2010) and munificent environment or benign by

Green, Covin and Slevin (2008). These scholars believe that these two environments play a

role in developing or nurturing of entrepreneurial behavior and activities.


Empirical studies on entrepreneurial environments suggest that societies that keep

rules and regulations at minimum offer tax incentives, and provide training and counseling

services to start-up entrepreneurs to increase the likelihood of new venture creation (Dana,

1987). Factors such as the availability of financial resources, location in large urban areas and

the presence of universities for training and research are also suggested to be very critical in

increasing the rate and nurturing of new venture developments (Pennings, 1982).

Similar environmental factors were found in the literature review conducted by Day

(2002). Apart from the environmental factors identified by Pennings (1982), other relevant

factors found by Day (2002) are competition, customers’ external pressure, government

incentives for business formation, network ties, quality of life, support services, supportive

societal culture, other entrepreneurs, suppliers, technically skilled labor, and technology.

Next, Aldrich and Wiedenmayer (1993) suggest that the sociopolitical environment could be

so powerful to the extent of creating or destroying entrepreneurship in a country. Covin and

Slevin (1989) also considered environmental factors to be a reasonable starting point for any

analysis of entrepreneurship.

Interestingly, the literature (Lumpkin and Dess, 2001; Wiklund and Shepherd, 2005)

indicates that conditions of high dynamism may limit the size advantage of large firms, but

may present opportunities for smaller competitors. The dynamic environment is useful for

smaller firms because they are able to develop their business through technology and they can

quickly introduce new products because of their flexibility and quick respond to the

environment.

The Relationships between Internal Motivation, Business Environment and Entrepreneurial Orientation


The environmental forces have influenced business organizations in many ways including the

design of the structure and culture. The influence of business environment on the strategic

orientation of a firm has received wide attention in the entrepreneurship research (Zahra,

1996; Dickson & Weaver, 1997; Luthans et al., 2000; Zahra & Garvis, 2000;).

In the theoretical framework of Shaver and Scott (1991), the scholars rejected the solo

role of “personological” approaches to understanding entrepreneurship and propose that we

must also understand both how the external environment is perceived in the mind of potential

entrepreneur (the process of social recognition) and whether the person chooses to act as what

he or she perceives. In addition, Lewin, in Shaver and Scott (1991) posited that behavior is a

function of both person and environment. This is in line with the reciprocal causation model

identified by Bandura’s (1989) Social Cognitive Theory (SCT) where behavior, cognitive

process and environment interact with one another. Under SCT, people’s behavior and

environment influence each other. Traditionally, people believe that the environment

influences the individual SME to be proactive, innovative or risk taking. Additionally,

Bandura (1987) believes that self-efficacy level will also determine entrepreneurial behavior

of owner managers in a given environment. This can be explained by the following example,

that is, an owner manager of SME which has strong values and self-efficacy would be

stronger (strong behaviors) in a weak environment. On the other hand, those having weak

self-efficacy level would give up or choose to be passive in a weak environment.

The literature indicates that studies on the moderating effects of business environment

on the relationship between entrepreneurial orientation and business performance are many,

but very few studies found indicate the moderating effects of business environment on the

relationship between internal motivation and entrepreneurial orientations. Among the few

studies identified were Shaver and Scott (1991), Adler (1996), Chen et al. (1998), Utsh et al.

(1999), Rauch and Frese (2007) and Wijbenga and Witteloostuijn (2007).


The study of Chen et al. (1998) on business founders and non business founders

(managers) demonstrated that business founders have higher self efficacy than non business

founders in innovativeness and risk taking orientation. The scholars suggested that supportive

environment would increase the self efficacy level among business owners because

individuals assess their entrepreneurial capabilities with reference to perceived resources,

opportunities and obstacles in the environment. They also postulated that personal efficacy

was more likely to be developed and sustained in a supportive environment than in an

adverse one. Moreover, the findings of Rauch and Frese (2007) showed that self efficacy

displayed the highest correlation with success in a meta-analysis. This indicates the

importance of self-efficacy and could be one of the determinant factors of entrepreneurial

orientations. Its influence, however, depends on the business environment. A supportive

environment may have to increase the level of self efficacy to a certain extent to affect

entrepreneurial orientations.

Similar to Chen et al. (1998), a study of Wijbenga and Witteloostuijn (2007) also

found that internal driven entrepreneurs showed more innovative behavior compared to

external driven entrepreneurs in a dynamic environment. The reasons for these are well

explained by Mischel (1968). According to this scholar, strong environment (or supportive

environment) determines behavior because in this environment, almost all expectations are

met and there are many incentives given by the government. Thus this scholar postulated that

in a strong environment people behave similarly regardless of individual differences. Weak

environment, on the other hand provide greater possibilities for individual interpretation and

action. This means that in a weak environment, the negative behavior will be projected due to

negative interpretation of the environment. The findings of Zahra (1996) and Zahra and

Garvis (2000) supported this view. These studies demonstrated that even strong internal drive


was not able to influence behavior to be strong in a weak environment. This is not as is

claimed by Bandura (1987).

Moreover, Zahra (1996) found that favorable perceived environmental factors tend to

encourage proactiveness. The favorable perceived environment was described as able to

encourage research and development spending within firms. In line with that, Zahra and

Garvis (2000) found it was likely that excessively hostile environments discouraged firm

from taking unnecessary risks. Additionally, in a study conducted by Utsch et al. (1999) on

the personality of small scale entrepreneurs in a post socialist environment, the scholars also

found that in the relationship between personality traits and behavior, behavior was stronger

in situations that did not constrain the person – so called strong situation.

The above views contradicted the views of Bandura (1989). He sees the influence of

environment on behavior depends not only on the strength of the environment, but also on the

interaction between the environment and behavior. As mentioned in the last section of self

efficacy, Bandura (1989) contended that a person with high self efficacy level would give the

best effort in a weak (hostile or dynamic) environment. A person with weak self efficacy in a

weak environment would easily give up. To the extent that Bandura was correct in explaining

the strong role of self-efficacy in environment-behavior relation, however, not much research

is conducted to support this claim (Raush & Frese, 2007).

In a study of 95 auto car dealers and owners, Okhomina (2010) found that supportive

environment moderate the relationships of psychological traits (achievement orientation,

locus of control and tolerance for ambiguity) and entrepreneurial orientations. Internal locus

of control, achievement orientation and tolerance for ambiguity were found to have positive

relationship with entrepreneurial orientations. Is it true as Bandura asserted that environment

has no influence on behaviors when self efficacy is stronger? His theory has not yet been

tested on SMEs or entrepreneurs, thus, scientific research is needed. Or is Zahra (1996) view


that influence of weak or strong environment determines entrepreneurial orientations of

SMEs, correct? Zahra’s view that environment plays a moderator role was well supported by

many research (Chen et al. 1998; Rauch & Frese, 2007; Wijbenga and Witteloostuijn, 2007;

Okhomina, 2010). However, Bandura’s view should not be ignored as there were also

evidences that self efficacy gave huge impact on behaviors (Markman et al., 2002; Hmieleski

& Baron, 2008). What is needed, therefore, is a study of the influence of self efficacy and

business environment on entrepreneurial orientations. Hence, the hypothesis for this study is

developed on this ground: business environment moderate the relationship between self-

efficacy and entrepreneurial orientation.

RESEARCH METHODOLOGY

For this study, a cross-section design was used to examine the relationships between self-

efficacy, business environment and entrepreneurial orientations of Malay SMEs in Malaysia.

The sampling frame was a mailing list of the Malay SMEs in manufacturing industry

provided by Majlis Amanah Rakyat (MARA). Malay was chosen for this study because

Malay was the majority group of the Malaysian population and their involvement in business

were given so much attention by Malaysian government. However, their achievement in

business was not as good as Chinese that this present study expected to uncover. The criteria

for inclusion in the sample were that the firms of non-diversified businesses, operate

principally in manufacturing, and have employees between 5 to 50. These criteria were used

to reduce the possibility of interpretational confounds. For example, non-diversified firms

were used because diversified firms may employ different decision making styles across their

product lines. The selection of manufacturing firms controlled for business sector influence.

Firms with less than five years of operation were not selected for the present study because

they were still struggling to survive. Hence, their entrepreneurial orientations were not clearly


seen as they keep trying to find the right direction or orientation. Finally, a size was set to

control for size-related effects on organization structure and firm flexibility (see Mintzberg,

1979).

With reference to Krejcie and Morgan (1970), for the population size of 9,997 (10,000

when rounded-up), the sampling size should be 370. Since the response rate among SMEs

was always low, in order to get 370, the researcher estimated about 50 percent business

owners would complete the survey, with 5 percent error tolerance, the number of

questionnaires distributed was 850. Therefore, 850 self-reported questionnaires with a self-

addressed stamped return envelope were mailed to the randomly selected owner managers of

SMEs from the original 1545 registered SME list. Out of 850 questionnaires distributed by

MARA officers in Terengganu, Pahang, Melaka, Johor, Penang, Kedah, Perak, Sabah and

Sarawak, only 162 usable questionnaires were collected representing about 44.6 percent

response rate (162/370). Thus, the study focused on 162 firms for which complete data were

available on the study’s measure. 127 of the firms were sole proprietors and 35 were

partnership. The majority of the samples (89 percent) were in the age group of firm within 5

to 8 years. 83 percent of the samples were having 5 to 9 employees.

Measurement

The following paragraphs describe the measures employed in this research. Table 1 and 4

show the summary statistics and correlation matrix, respectively.

Dependent variable

Entrepreneurial orientations (EO). There were only three dimensions of EO employed for the

present study. The constructs of 12 items borrowed from Lumpkin and Dess (1996) have

been gone through construct validation process using Rasch Model, have reduced to 9 items.

These 9 items include three items to access the innovation dimension of EO, three items to


measure proactiveness, and three to measure risk taking. The mean score value of EO among

respondent was 2.1289 (refer to Table 3). Higher overall scores on the 9-item EO scale

indicate a more entrepreneurial orientation, while lower scores are indicative of a more

conservative orientation. The cronbach’s alpha for all items was .904 which showed high

reliability.

Independent variable

Self-efficacy (SE). A 22-item, 5-point likert scale adopted from Chen et al. (2004), was used

to measure self efficacy motivation. Only 14 items were finally selected from the 22 items

after gone through construct validation process using Rasch Measurement Model. It has high

internal consistency rate (score) which was determined by a Response Category Curve and

Threshold. The mean score of SE among respondent was 2.2923, which indicate that on the

aggregate, Malay owner managers have a high level of SE (they were confident to handle

tasks related to business).

Moderated variable

The hostility and munificent dimensions of business environment (BE) were measured using

4 items which originally 6 items, 5 point likert scale that was designed to measure

respondents’ perception on the type of environment they were in, munificent/hostility,

developed by Green, Covin and Slevin (2008). Munificent and hostility were asked by the

same questions, the above mean score represent hostility, while below average means

munificent. The mean score value of hostility as shown in Table 3, was 1.8056. The low

mean score values for hostility is the opposite of munificent (Green et al.,2008 ), meaning on

the aggregate, the environment was perceived moderately hostile. The reliability of all items

was 0.8 which indicated high reliability.


On the whole, the Person (owner managers of SMEs) reliability (.94) and item

reliability (.97), produced by Rasch Model were high at very low error indicating that the

instruments used have sufficient items and persons to measure each variable in the model and

to test the theory. These instruments measured the persons with a precision of .09 standard

error and able to separate people into a separation of 4.62 or equivalent to 5. Table 1

summarizes the descriptive statistic of the study variables. There were 26 items all together

left for analysis.

ANALYSIS

The analyses were conducted into two stages. The first stage was to identify the problem of

collinearity and the normality of the data. The second stage was to test the hypothesis of the

study.

First stage of analysis:

Test of normality

The descriptive statistics were used to examine the bivariate relationship by comparing the

average (mean) for each variable. Besides that, other statistical characteristics of the variables

that include the standard deviation, skewness, kurtosis (the height) and variation of the

distribution were analyzed. These findings were summarized in Table 1. This determined

whether the sample data were normally distributed or not. For a sample that was normally

distributed, the value of skewness was equal to zero, the values of kurtosis should be zero and

the value of the mean should be the same as the value of its median. Before EDA was

conducted, the 5 response categories were recoded into 3 response categories as

recommended by Rasch Model. Similar to what was done to the response categories in Rasch

Model, the response category 1 and 2 were recoded to be 1 (strongly disagree), response

category 3 and 4 were recoded as 2 (somewhat agree) and response category 5 was recoded


as 3 (strongly agree). These recoding was necessary because the construct validation and

reliability was done by Rasch Model, thus the data should be similar including its rating

scale. In addition, if Rasch Model identified the threshold of the category structure was poor,

it would also affect the results in most SPSS analysis.

Sample data that were normally distributed should be an efficient estimator, unbiased

and consistent. Nevertheless, the results of the descriptive data shown on Table 1 indicated

that the sample was normally distributed. The values of mean and median for all the variables

were almost the same. The skewness of the outcome variables as shown in column five were

the acceptable range of Zscore +1.96 . At the same time, the values of kurtosis for especially

outcome variables (EO), as revealed in column 6, were within the range of Zscore +1.96. The

standardized residual of mean value which was 0 and its standard deviation which was closer

to 1 also indicated normality of the data distribution.

Table 1: Descriptive Statistics Variable Mean Median Std. Deviation Skewness KurtosisEO 2.1533 2.0000 .42073 .127 -.016SE 2.2923 2.2143 .33737 .524 -.877Hostility 1.8056 1.7500 .46375 .184 -.285

Table 2: Residuals Statistics(a)Minimum Maximum Mean Std. Deviation

Residual -1.74223 1.26294 .00000 .62200Std. Residual -2.739 1.986 .000 .978Mahal. Distance .04815 14.045 2.857 3.163

The Mahalanobis distance of each item was smaller than 14 except for item no 17 which was

at 14.045. For sample size of 150 and above, this was acceptable (Field, 2010).

Test of autocorrelation and multicollinearity


The size of Durbin Watson statistic which depends on the number of predictors and number

of observation, as conservative rule of thumb, values less than 1 or greater than 3 are

definitely cause for concern. In this case the value of Durbin Watson was closer to 2

indicating that there was no serious problem of autocorrelation. This can be seen in Table 3

(column 5).

In order to detect whether multicollinearity was a problem to the model, condition

index; the variance-inflation factor (VIF); and tolerance of each variable was calculated. VIF

values are considered a problem when they go beyond 10, and tolerance values below .10

should be a cause for concern. A condition index over 30 suggests serious collinearity

problems and an index over 15 indicates possible collinearity problems. The data were duly

tested for multicollinearity by using Pearson’s correlation and conditional index. The results

in Table 3 and Table 4, showed no serious problem of multicollinearity.

Table 3: Collinearity Statistics

Tolerance VIFCondition

IndexDurbin Watson

1 (Constant) SE .533 1.875 29.154 1.813

Hostility .856 1.168 29.381 1.886

a Dependent Variable: EO

Table 4: Correlation matrix between variables

Firm ageNumber of employees EO SE

Firm Age 1number of employees .341(**) 1Entrepreneurial orientations .025 .067 1Self-efficacy .048 .097 .459(**) 1

Second stage of analysis: Hypothesis testing


The hypothesis stated that munificent environment moderate the relationship between SE and

EO. This hypothesis was tested employing hierarchical regression analysis used by Sharma

(1981). The objective of this statistical procedure was to explain change in the dependent

variable with respect to changes in the independent variables. Sharma (1981) identified two

types of moderators: quasy (partial); and pure. The types of moderator could be identified

through 4 steps of Moderated Regression Analysis (MRA). As recommended by Sharma

(1981), the steps involved were:

“Step 1. Determine whether a significant interaction is present between the

hypothesized moderator variable,' z, and the predictor variable by the MRA

procedure. If a significant interaction is found, proceed to Step 2. Otherwise,

go to Step 3.

Step 2. Determine whether z is related to the criterion variable. If it is, z is a

quasi moderator variable. If not, z is a pure moderator variable. In either

case, the moderator influences the form of the relationship in the classic

validation model.

Step 3. Determine whether z is related to the criterion or predictor variable.

If it is related, z is not a moderator but an exogenous, predictor, intervening,

antecedent, or a suppressor variable. If z is not related to either the predictor

or criterion variable, proceed to Step 4.

Step 4. Split the total sample into subgroups on the basis of the hypothesized

moderator variable. The groups can be formed by a median, quartile, or

other type of split. After segmenting the total sample .into subgroups, do a

test of significance for differences in predictive validity across subgroups. If

significant differences are found, z is a homologizer variable operating


through the error term. If no significant differences are found, z is not a

moderator variable and the analysis concludes.” (pp.6)

The first step was applied to see the significant interaction between SE and Hostility. This

can be identified by the hierarchical regression analysis. The results as shown in Table 5

indicated no significant interaction of SE and Hostility, the step 3 was then applied, to see if

hostility was significantly related to either predictor (SE) or dependent variable (EOs).

Table 5: MRA results: Moderation test

EO (dependent variable) R R2 Change in R2

Step 1 (SE was entered)Step 2 (Hostility was added)

Independent variablesSEHOSTILITY

.459**.471

.210

.222.210.012

Step 3 (SE*Hostility was added)

InteractionSE*HOSTILITY .481 .231 .009

**p <0.001,

The regression results in Table 6 showed that hostility was significantly related to

both predictor (SE) β=.243, p<.01 and dependent variable (EOs) β=.216, p<.01 but a weak

relationship. This indicated the invalidity of the role of hostility as moderator. In addition to

these basic considerations, Baron and Kenny (1986) suggested that it was desirable that the

moderator variable to be uncorrelated with both the predictor and the the dependent variable

to provide a clearly interpretable interaction term. These results had to reject the hypothesis.

Table 6:

The results of linear regression between self-efficacy and hostility AND the regression between entrepreneurial orientation and hostiity (Step 3 as suggested by Sharma, 1981)

B S.E β R2 Adj R2 FConstant 1.973** .104SE- Hostility .177* .056 .243* .059* .053 10.034*Constant 1.799** .131EOs-Hostility .196* .070 .216* .047* .041 7.835*

**Sig at p<.001; *Sig at p < .01


The result exhibited that the hostile environment has no influence on self efficacy to affect

change in EOs. This revealed the important role of self efficacy in changing entrepreneurial

behaviors of Malay owner managers. This findings did not gain support from either

Bandura’s (1987) theory of self-efficacy or Zahra’s (1996) findings. This result had

demonstrated the important role of self efficacy in building up the entrepreneurial

orientations of an individual owner manager. However, it was important to note that hostile

environment might play the role of an exogenous, predictor, intervening, antecedent, or a

suppressor variable. This was because as suggested by Sharma (1981), if a tested moderator

variable was found to be related to either predictor or criterion, but with no significant

interaction between the tested moderator variable with criterion, it could be treated as any of

the mentioned roles. In this study, the hostile environment was believed to be a suppressor

because as claimed by Thompson and Levine (1997) that suppressor variable could

substantially improve the prediction of a criterion (entrepreneurial orientations) through the

addition of the variable which is uncorrelated or relatively little correlated with the criterion

but is related to another predictor (self-efficacy).

DISCUSSION

The entrepreneurial orientation dimension consisting of innovativeness, risk taking behavior,

and proactive orientation, represents a recent model of conceptualization of entrepreneurial

activities that have been employed in prior studies. This study revisits the question as to

whether personalogical characteristics (self-efficacy) are useful predictors by investigating

their relationship to entrepreneurial orientation; and whether environments moderate the

relationship between internal motivation of self-efficacy and entrepreneurial orientations.

Prior research studies into entrepreneurial activities have focused attention on the effects of

entrepreneurial behavior and the principal dependent variables have been financial


performance and environmental uncertainty (e.g. Dess, Lumpkin, & Covin, 1997; Zahra,

1996; Lumpkin & Dess, 2001). Majority of the past research findings (Ahmed, 1985;

Begley& Boyd, 1987; Chen et al., 1998) have converged on the relationship between

entrepreneurship and psychological traits with primary focus into exploring the performance

implications, and distinguishing entrepreneurs from the general population.

In contrast, this research ventured to consider the dimension of entrepreneurial

orientation as the dependent variable and self-efficacy as the predictor, where performance or

achievement has been looked at based on the level of entrepreneurial orientations indulged.

This is because entrepreneurial orientations and performance are always found to be

positively related in prior research findings (Dess, Lumpkin, & Covin, 1997; Zahra, 1996;

Lumpkin & Dess, 2001). That was why the focus was given to the factors that contribute to a

person entrepreneurial aspect with special attention given to the psychological characteristics

of a person and/or what is against entrepreneurism.

The results of contingency hypotheses, which explore how self-efficacy might relate

to entrepreneurial orientations under different circumstances, could not be supported by

neither Bandura’s theory nor the findings of Zahra (1996) and other researchers. This was

because the present study found that hostility environment did not moderate the relationship

between entrepreneurial orientation and self efficacy. The role of environment as a moderator

was not revealed. Self-efficacy did not change despite the change in the perception of owner

managers towards environment. The inconsistent finding with the prior research was due to

the unique characteristics of the Malay owner managers. Malay owner managers mostly

received support from the Malaysian government since after interdependence, and the support

was given almost all the time in most situations (weak and strong situations). This may result

in less attention given by Malay owner managers to environmental changes as they might

perceive that they will be supported by the government in case of difficulty. Regardless of


how many incentives provided by the government, the Malay owner managers did not change

accordingly. It was their self-efficacy that might influence their decision and actions. This

finding may only be true to Malay owner managers, not the Chinese or Indians. This was

because the study was conducted only among Malay owner managers, thus generalizability

could not be made on other ethnics in Malaysia. The more conclusive results can be gained if

future research makes a comparative study between races or ethnic groups in Malaysia.

In the case of the present study, the average self-efficacy of Malay owner managers is

quite high. Their confidence on their ability to be proactive or innovative is high that the

business environment did not give any impact on their self-efficacy. The strong belief

controls their thinking that their behaviors would determine their success regardless of

situation. This resulted in the increase in their self-efficacy level which in turn, influences

their behaviors. Thus, this might be another plausible reason as to why the findings were

different from the findings of previous research.

Although this was contrary to the hypothesis of present study and findings of other

EO researchers (Zahra, 1996; Utsh et al, 1999; Chen et al., 1998; Rauch & Frese, 2007;

Wijbenga & wittloostuijin, 2007; Okhomina, 2010), this result was consistent with Bandura’s

(1989) theory with regard to the role of self-efficacy as predictor to behaviors which

influence their environment. According to Bandura’s Social Cognitive Theory, there are

reciprocal relationships between people, people’s behavior and environment. Sometimes

individual behavior prevails; at other times the environment prevails. According to Bandura

(1977), people fear and tend to avoid threatening situations which they believe exceeded their

coping skills, whereas they get involved in activities and behave assuredly when they judge

themselves capable of handling situations that would otherwise be intimidating. Not only can

perceived self-efficacy have directive influence on choice of activities and settings, but,

through expectations of eventual success, it can affect coping efforts once they are initiated.


Efficacy expectations determine how much effort people will expend and how long they will

persist in the face of obstacles and aversive experiences. The stronger the perceived self-

efficacy the more active the effort put in. Those who persist in subjectively threatening

activities that are in fact relatively safe will gain corrective experiences that reinforce their

sense of efficacy, thereby eventually eliminating their defensive behavior. Those who cease

their coping efforts prematurely will retain their self debilitating expectations and fears for a

long time if they never try to cope with the challenge, and see how far they can reach the

objective set. In the case of the present study, the respondents’ behaviors resulted from how

they perceived and judged their capability. Since they perceived situations as not threatening,

they believed they were capable of handling situations and expected success. This could

enhance their level of self-efficacy. When their sense of self-efficacy was high, their efforts

in realizing entrepreneurial orientations became more active. This explained why, on average,

the mean score of self-efficacy of the respondents was high and why they were

entrepreneurial.

The different results in this study may also be related to the influence of the

measurement issues. Measurement has played a role in the rather equivocal findings with

regard to the role of hostility in the self-efficacy-entrepreneurial orientations relationship.

Future research needs to be directed toward further developing the measurement of hostile

environment where the Malaysian scenario should be taken into consideration. This is

because in Rasch analysis, items “failure rate is high in my industry”, “low margin” identified

by Rasch Model to receive inconsistent response by the respondents. Many respondents of

different levels of ability showed their uncertainty to respond to these items. The reason

could be due to the comfort zone the Malay owner managers were experiencing with the

continuous support from Malaysian government, that they gave little attention to the changes

in the environment, thus they were uncertain to which respond they should provide. This also


reflects a bad implication of continuous support from government to Malay owner managers,

making them become less alert to challenges and obstacles.

In essence, the finding provided no support for the criticisms advanced by Gartner

(1988), Chattapodhyay and Ghosh (2008), Kumar (2007), Baron (2004), whereby those

psychological traits alone are adequate in explaining entrepreneurial orientation. However,

this finding was not conclusive because the study involved only Malay owner managers in

Malaysia. Thus, this finding was meant to describe the Malay owner managers in Malaysia.

This finding rejected Shaver and Scott’s (1991) proposal that the solo role of

“personalogical” approach in understanding entrepreneurship was insufficient that they

suggested to consider the role of external environment. The findings of the present study

denied Shaver and Scott’s (1991) proposal because self efficacy (personalogical

characteristics) was found to predict behaviors better. In addition, environment did not give

any effect on behaviors of Malay owner managers because of the unique characteristics of the

Malay owner managers. The findings were not able to get support from the works of Chen et

al (1998), Zahra and Garvis (2000), Rauch and Frese (2007), Wijbenga and Witteloostuijin

(2007), which demonstrated the weak influence of internal drive on behavior in a weak

environment. The present study also was not supported by what was claimed by Bandura

(1994) that people with high level of self-efficacy shows strong behavior in weak

environment. The present study revealed that self efficacy of Malay owner managers

determines entrepreneurial orientations regardless of situation. The environment was not able

to change the relationship between self-efficacy and entrepreneurial orientations. Whatever

environment they face, they will be entrepreneurial depending on their self efficacy level.

The moderating role of environment could be true on the relationship between entrepreneurial

orientations and performance as consistently found by most research in the past (Dess,

Lumpkin, & Covin, 1997; Zahra, 1996; Lumpkin & Dess, 2001).


Therefore, it is worth mentioning that Gartner’s (1988) suggestion in relation to the

creation of an organization as a complex process and a contextual event, did not happen in

the Malaysian context. Finally, this present study has presented a more robust model for

predicting entrepreneurial behavior in Malaysia because it incorporated variables from two

different levels of analyses, including the psychological characteristics (self-efficacy

motivation) and the firm level of entrepreneurial behavior or orientation. The supportive

environment was not regarded as moderator in this model but it may be a suppressor to

improve the prediction of entrepreneurial orientations by self-efficacy (Thompson & Levine,

1997). However, the result may be different if the study was conducted on all ethnic groups

in Malaysia and in different settings, as they might provide totally different perception of the

environment.

IMPLICATION

Overall, these research findings have a number of theoretical and managerial implications.

The findings have introduced a new insight into the role of the environment in the

relationship between self-efficacy and entrepreneurial orientations by the surprise finding that

showed that the environment did not moderate the link between self-efficacy and

entrepreneurial orientations, but in fact suppressed the link. The result of the present study

failed to confirm the moderating role of business environment but it was regarded as a

suppressor to entrepreneurial orientations. This means the inclusion of business environment

in the regression model, has improved the prediction of entrepreneurial orientations. Based on

the findings, the present study alleged that even though business environment was not a

moderator, it might have caused self-efficacy to predict entrepreneurial orientations better.

This finding may open to a constructive debate on the role of environment as suppressor on

the relationship between self-efficacy and entrepreneurial orientations. In the literature of


entrepreneurship research, business environment has continuously found to be a moderator on

the relationship between strategies, or entrepreneurial orientations with performance.

Therefore, the finding has added another role of environment, that is, a suppressor, to the

literature. This means, the present study has introduced a new model of entrepreneurship by

the inclusion of business environment as a suppressor on the relationship between self-

efficacy and entrepreneurial orientations.

To management practitioners, and other business professionals who are involved in

risky ventures may employ this entrepreneurial orientation model as a useful tool to assess

entrepreneurial capabilities, managerial tendencies that may improve return on investment

relative to human capital. Also, it may be a useful tool for selecting team members for new

business start ups, and evaluating applicants for entrepreneurship positions in the corporate

world, among others.

The findings are also useful for Malaysian government to find new approach in

improving Malay owner managers. The concern should be given more on how to improve the

self-efficacy level of Malay owner managers. Since self-efficacy reflects their certainty in

performing business related tasks, their confidence is important to be upgraded through an

effective training module that focus on specific skills they were not certain to do.

Another implication is in the area of entrepreneurship pedagogy, linking the

relationship between psychological traits and entrepreneurial orientation could be used as a

technique for identifying students for entrepreneurial careers. Another significant

contribution of this study is that the study was conducted with actual entrepreneurs in the

manufacturing sector. Prior studies have drawn their samples from mostly students, managers

and non-entrepreneurs.


LIMITATIONS OF THE STUDY AND FUTURE RESEARCH

Among the limitations that were committed were the time and situational constrains, where

the respondents were mostly from the West Coast of Peninsular Malaysia. Malay owner

managers from the East Coast of Peninsular Malaysia might have different values, different

self efficacy and different perception on environment. A wider geographical area would have

been preferable for generalizing the results to the overall population, thus more convincing

conclusion could be made. Nevertheless, the response rate for this study was not encouraging

enough and this could be the basis for the future research.

Finally, the small sample size might not be substantive enough for this kind of

behavioral research. Moreover, all the respondents were Malays; hence the results of this

study cannot be generalized to the entire Malaysian population.

Future data-based research studies addressing psychological characteristics and

sociological influences on entrepreneurial orientations should employ a more representative

sample from multiple industries and races with provisions for inter-industry variations in life

cycles. Future research to verify the results of this study could be conducted through more

empirical cross-cultural and cross-country studies. In addition, attempts to investigate

similarities and distinguishing characteristics of business owner managers from various

nationalities, industries and sizes could also be done in future research. Moreover, those

studies could also be based on broader set of cultural values. Potentially a cross-cultural study

investigating differences between Malays and non-Malays could provide additional insights

in terms of personal values, motivation and entrepreneurial orientations, in which the findings

would be more comprehensive and conclusive. Potential correlations between some of the

independent variables (e.g. gender, race, education, religion) were other implications that

could also be revealed from future research.


Since the findings of the present study shows the importance of self-efficacy in

business success, and since what was found in previous study that self-efficacy could be

gained through training, this means those who were found to be less entrepreneurial, can still

have the chance to be entrepreneurial and successful if they know how to improve their self-

efficacy level, attending training is one of the solutions. For future research, it is suggested

that multidimensional self-efficacy construct is used so that self-efficacy that is important to

business could be identified, thus, easier for the consultant to develop module specifically

improving relevant self-efficacy that help improve entrepreneurial orientations.

The length of the questionnaire should be significantly reduced to improve the

response rate. A multiple-item scale should be adapted to measure the respective

psychological constructs. A multiple-item scale is appropriate for reliability when primary

data are collected (Chandler and Lyon, 2001). Because of the dynamic process of

entrepreneurship, a triangular approach comprised of the three prevalent approaches

including managerial perception employed in this study, resource allocation and longitudinal

approaches should be employed in future research to minimize the limitations of these

findings.

CONCLUSION

While others have claimed that business environment was important factor to influence

entrepreneurial orientations or behaviors, ironically, in this study, business environment was

not found to influence entrepreneurial orientations. The finding that environment did not

moderate the relationship between self efficacy and entrepreneurial orientations, was not able

to get support from past research as well. Even though the finding was not supported by the

previous research but it was an important discovery to the Malaysian government. This

finding provided some clue to why Malay owner managers did not improve as much as


incentives given to them by the Malaysian government. The findings revealed the important

role of self-efficacy in making owner mangers to be entrepreneurial or less.

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