Entrepreneurial Orientation and SME Performance in Katsina State: Mediating Role of Dynamic Capabilities

Abstract

This study investigates the mediating role of Dynamic Capability in the relationship between Entrepreneurial Orientation and the performance of Small and Medium Enterprises (SMEs) in Katsina State, Nigeria. Entrepreneurial Orientation is disaggregated into its three core dimensions, Innovativeness, Proactiveness, and Risk-Taking, to examine whether Dynamic Capability mediates each dimension's effect on performance individually. Grounded in the Resource-Based View and Dynamic Capabilities Theory, the research adopts a cross-sectional survey design. Primary data were collected from formally registered SMEs using a structured questionnaire and analyzed through Partial Least Squares Structural Equation Modelling. The findings reveal that Innovativeness and Proactiveness each exert a significant direct effect on SME performance, whereas Risk-Taking does not demonstrate a significant direct influence. However, Dynamic Capability is found to partially mediate the relationships between all three Entrepreneurial Orientation proxies and performance. Notably, Risk-Taking exhibits the highest proportion of its effect transmitted indirectly through Dynamic Capability, suggesting that its contribution to performance is largely realized through internal capability development rather than through direct action. These results imply that SME owner-managers, enterprise development agencies, and state-level policymakers in Northwestern Nigeria should prioritize interventions focused on building internal dynamic capabilities, especially to harness risk-oriented entrepreneurial behaviors. This study contributes to the Katsina State enterprise research agenda by offering the first disaggregated test of each Entrepreneurial Orientation proxy as an antecedent of Dynamic Capability, addressing a gap left by prior studies that relied predominantly on externally focused mediating mechanisms.