Does risk tolerance behaviour of entrepreneur affect the growth of entrepreneurial firms through the mediation of effectuation decision-making approach

Abstract

Risk tolerance behaviour is a cognitive variable that helps the entrepreneur to estimate risk which in turn helps to make decisions. This is how risk tolerance behaviour can be helpful to explain decision-making techniques adopted by entrepreneurs. Decision-making approach is a crucial factor as it impacts the growth of entrepreneurial firms. This paper develops and investigates the relationship between five cognitive variables on the firm performance drawing from cognition and entrepreneurship theories. A structured questionnaire was used to collect data from 158 IT SME decision makers during April-June 2016. The relationship between different variables is measured using univariate general linear model (GLM). This study found statistically significant relationship amongst entrepreneurial inclination, risk tolerance behaviour, effectuation and firm performance. However, the mediation effect of effectuation on risk tolerance behaviour and firm performance is found to be statistically insignificant. This study links entrepreneurial cognition with firm performance showing decision-making logic as a mediator.