Entrepreneurial Capability, Institutional Factors and SME Performance in Ghana

Abstract

Success and survival in today’s dynamic institutional environments and competitive markets require Small and Medium-Sized Enterprises (SMEs) to develop and build entrepreneurial capability (EC) to continuously explore and exploit opportunities to generate value by creating and/or expanding entrepreneurial activities. Given the significant contributions of SMEs to the growth of Ghana’s economy, successive Ghanaian governments have sought to regulate, promote, and facilitate SME growth and performance through institutional framework and policy interventions. Despite the existence of these institutional framework and policy interventions, there is rather a high persistent failure of SMEs and entrepreneurship in general across Ghana. Studies assessing the failure of SMEs have not reached a consensus regarding the perspective from which the high persistent SME failure could be comprehensively investigated and understood. Process-view perspective of investigating SME failure has not been given much needed research attention. Thus, this thesis seeks to develop a theory-driven and process-oriented model to examine and predict the impact of EC and institutional factors on SME performance in Ghana. To achieve this purpose, three research objectives were put forth as follows: to examine and validate the theoretical linkages between opportunity exploration and exploitation as the proposed dimensions of EC; to assess the direct impact of EC on SME performance in Ghana; and to determine the moderating effect of institutional factors (IFs) on the relationship between EC and SME performance in Ghana. The resource-based theory, dynamic capabilities theory and institutional theory were employed as theoretical underpinnings of the study. Drawing on these theories, a conceptual framework was developed to examine the differential roles resources and capabilities played in capturing the dynamics in the entrepreneurial process. Based on the positivistic worldview, a quantitative research strategy was designed in a single stage cross-sectional survey. Five hundred and fifty (550) questionnaires were sent out to respondents who were conveniently sampled from the sampling frame of all registered SMEs in the Greater Accra region, drawn from the Integrated Business Establishment Survey database. Out of the 512 complete responses retrieved, 488 of them were found useable. Data was analysed using descriptive statistics and partial least square structured equation modelling (PLS-SEM). The findings validate EC as a process-oriented concept consisting of explorative and exploitative capabilities, where opportunity exploration precedes opportunity exploitation. The findings further show that EC positively and significantly impacts SME performance in Ghana. Regarding the moderating role of institutional functions on the relationship between EC and SME performance, the study found that the moderating effect is negative and significant for the regulatory functions; positive and significant for the promotional functions and positive but not significant for the facilitatory functions. In consequence, therefore, SME growth and sustainability requires continuous exploration and exploitation of opportunities, while taking into consideration the institutional constraints or enablement. The study, recommends that future studies should replicate this study in the informal sector to investigate how the sector builds EC and is affected by institutional functions.