Navigating turbulent markets: the mediating role of innovation capability in translating entrepreneurial orientation into firm performance

Purpose The performance implications of entrepreneurial orientation (EO) remain inconclusive, particularly among manufacturing micro and small enterprises (MSEs) in emerging-market contexts. Drawing on dynamic capability (DCT) and contingency theories, this study examines how innovativeness, proactiveness, and risk-taking influence firm performance through innovation capability (IC) and whether environmental turbulence (EVT) moderates these relationships. Design/methodology/approach A cross-sectional survey was conducted among 805 respondents, comprising owners, managers, and employees of MSEs in an emerging market. Structural equation modeling (SEM) was used to examine the direct effects of the three EO dimensions on firm performance, the mediating role of IC, and the moderating effects of EVT. Findings Innovativeness and proactiveness have positive effects on firm performance, whereas risk-taking has a negative effect. IC mediates the effects of innovativeness and proactiveness on firm performance and transmits the negative effect of risk-taking. EVT strengthens the positive effect of innovativeness on firm performance, does not significantly moderate the proactiveness–performance relationship, and strengthens the negative effect of risk-taking. Originality/value This study contributes to performance management research by developing an integrated framework that explains both the mechanism and boundary conditions through which EO dimensions influence firm performance. It extends EO research by identifying IC as a key performance-conversion mechanism and EVT as an important contextual boundary condition. By integrating dynamic capability and contingency perspectives, the study provides a more nuanced and context-sensitive understanding of how EO and IC can be configured to enhance performance, particularly in resource-constrained manufacturing MSEs in emerging markets.