Does Knowledge Mediate the Effect of Context on Performance? Some Initial Evidence

This research examines the links among four firm context variables, knowledge, and financial performance. Adopting a knowledge‐based, contingency view of the firm and assuming that strategy's locus is knowledge creation and application, we hypothesize that knowledge completely mediates the effects of context on performance. The results from analyzing 208 manufacturers found a positive relationship between applied knowledge and financial performance, but none between knowledge creation and performance. As for context, production technology routineness and low demand unpredictability were positively related only to greater applied knowledge; high technological turbulence was positively related to both knowledge creation and knowledge application; and firm size had no effect on either knowledge construct. No direct context‐performance relationships were found (i.e., all effects were indirect): knowledge, in particular applied knowledge, completely mediated the impact of context on performance.