Entrepreneurial Leadership and Performance in Chinese New Ventures: A Moderated Mediation Model of Exploratory Innovation, Exploitative Innovation and Environmental Dynamism

Shenglan Huang, Donghong Ding and Zhi Chen

This study advances prior theoretical research by examining the relationship between entrepreneurial
leadership and new venture performance with the introduction of exploratory and
exploitative innovations as mediating variables. To fully understand the influence process of
entrepreneurial leadership, we argue that environmental dynamism should be considered.
Data on 168 new ventures in China indicate that entrepreneurial leadership is positively
related to both exploratory and exploitative innovations, which in turn are both positively
related to new venture performance. Our results also confirm that environmental dynamism
moderates the relationship between entrepreneurial leadership and both types of innovation
(i.e., exploratory and exploitative). Thus, we contribute to the debate on the influence of
entrepreneurial leadership on the pursuit of excellent new venture performance, not only by
examining how entrepreneurial leadership affects new venture performance by pursuing two
types of innovative activities (i.e., exploratory and exploitative innovations), but also by
revealing how these relationships are contingent upon environmental dynamism.

Introduction
Considerable research has highlighted the
importance of leadership in managing
new ventures (Swiercz & Lydon, 2002;
Townsend, Busenitz & Arthurs, 2010). Entrepreneurial
leadership, which embodies the
characteristics of both entrepreneurs and successful
leaders, has emerged as a new type
of leadership in the entrepreneurship literature
(Fernald, Solomon & Tarabishy, 2005;
Sundararajan, Sundararajan & Henderson,
2012; Vecchio, 2003). Entrepreneurial leadership
is defined as a type of ‘leadership that
creates visionary scenarios that are used to
assemble and mobilize a “supporting cast” of
participants who become committed by the
vision to the discovery and exploitation of

strategic value creation’ (Gupta, MacMillan &
Surie, 2004, p. 242). The literature has indicated
that entrepreneurial leadership can provide
the new venture with a capacity to create
the requisite variety to contend with its
dynamic environment (Chen, 2007; Wang, Tee
& Ahmed, 2012). Although new ventures
provide a venue where the effect of entrepreneurial
leadership is most significant (Darling,
Keeffe & Ross, 2007; Renko et al., 2014;
Swiercz & Lydon, 2002), few empirical studies
have investigated the performance mechanisms
of entrepreneurial leadership in new
ventures. To address this gap, the present
study aims to empirically investigate the relationship
between entrepreneurial leadership
and new venture performance, following the
focus of entrepreneurship literature on the

importance of leadership in the entrepreneurial
context (Daily et al., 2002; Hmieleski, Cole
& Baron, 2012).
Several researchers suggest that the entrepreneurship
and strategic management disciplines
are inseparable; thus, examining the
complementarity between entrepreneurship
and strategic management may help scholars
extensively explore the performance mechanism
of entrepreneurial leadership (Wang &
Yang, 2006; Wang, Tee & Ahmed, 2012). Strategic
entrepreneurship highlights both entrepreneurship
and strategic management in the
entrepreneurial process (Ireland et al., 2001;
Ketchen, Ireland & Snow, 2007). Rooted in
entrepreneurship, strategic entrepreneurship
concerns the discovery and creation of opportunities
to create value (Hitt et al., 2011;
Pacheco, Dean & Payne, 2010). Rooted in strategic
management, strategic entrepreneurship
concerns the creation of sustainable competitive
advantages to exploit opportunities
(Harms, Walsh & Groen, 2012; Kuratko &
Audretsch, 2009). That implies entrepreneurial
activities comprise not only exploratory innovation
but also exploitative innovation; the
two innovations are indispensable concepts
in the entrepreneurial process for ensuring
current and future viability (Groen, Wakkee &
De Weerd-Nederhof, 2008; Harms, Walsh &
Groen, 2012; Kollmann & Stöckmann, 2014).
Therefore, from the strategic entrepreneurship
perspective, this study empirically examines
the underlying mechanism through which
entrepreneurial leadership influences new
venture performance by focusing on exploratory
and exploitative innovations.
Although the importance of entrepreneurial
leadership in new ventures has been established,
the effectiveness of entrepreneurial
leadership in the external environment still
warrants further investigation (Antonakis &
Autio, 2007; Renko et al., 2014). The external
environment is considered in this study in
terms of environmental dynamism. Environmental
dynamism is the extent to which the
environment of new ventures is subject to
unpredictable and rapid changes and thus
to high levels of uncertainty (Baron & Tang,
2011; Hmieleski & Ensley, 2007; Miller, 2007).
Environmental dynamism moderates the
effects of leadership behaviour on exploratory
and exploitative innovations (Jansen, Vera &
Crossan, 2009), and those of exploratory and
exploitative innovations on firm performance
(Jansen, Van Den Bosch & Volberda, 2006).
Therefore, this study assesses the potential
moderating effects of environmental dynamism
on the linkage between entrepreneurial
leadership and both types of innovation (i.e.,
exploratory and exploitative) and on the

linkage between both types of innovation and
new venture performance.
Theoretical Framework
and Hypotheses

Entrepreneurial Leadership
Entrepreneurial leadership is a role by which
entrepreneurial leaders can reposition a firm
to capture opportunities and enhance the
capability of the firm to create the requisite
variety to contend with the highly unpredictable
environment (Hentschke & Caldwell,
2005; Kamm et al., 1990; Renko et al., 2014). A
dominant framework of entrepreneurial leadership
is the typology of Gupta, MacMillan
and Surie (2004), which focuses on the five
roles of entrepreneurial leadership, namely,
framing the challenge, absorbing uncertainty,
underwriting, building commitment and
defining gravity. The characteristics and
descriptions of the five roles are listed in
Table 1.
The first three roles of entrepreneurial leadership,
namely, framing the challenge, absorbing
uncertainty and underwriting, require the
leader to have the entrepreneurial ability to
identify opportunities to develop sustainable
competitive advantages (Jones & Crompton,
2009). The subsequent two roles of entrepreneurial
leadership, namely, building commitment
and defining gravity, require the leader
to have the leadership ability to motivate
others and mobilize resources to facilitate
change (Wang & Yang, 2006). Effective entrepreneurial
leadership means displaying the
abilities of both entrepreneurs and successful
leaders, and seems to be important to the
survival and development of new ventures
(Sundararajan, Sundararajan & Henderson,
2012). However, the performance mechanism
of entrepreneurial leadership as a new type of
leadership in new ventures remains unclear
(Wang, Tee & Ahmed, 2012).
To understand the benefits of leadership
styles for the performance of new ventures,
existing studies have primarily drawn on the
mainstream leadership literature, especially
transformational and transactional leadership
styles (Hmieleski, Cole & Baron, 2012). For
example, previous literature has demonstrated
that transformational leadership affects new
venture performance by providing vision and
inspiration, and challenging the status quo
(Ensley, Pearce & Hmieleski, 2006). Compared
with transformational leadership, transactional
leadership displays contingent reward
behaviours and active management by exception,
which may foster the survival and growth
of new ventures (Jansen, Vera & Crossan,

2009). However, some scholars have posited
that transformational and transactional leadership
styles often depict the leader as someone
entrusted with an organizational task that
needs to be accomplished within a given
organizational context (Gupta, MacMillan &
Surie, 2004). On the contrary, entrepreneurial
leadership is founded on the assumption that
the leader must enact an entirely emergent
organizational task, not one that is carefully
planned, and uncover an entirely emergent
transaction set, not originally visualized
(Gupta, MacMillan & Surie, 2004;Wang, Tee &
Ahmed, 2012). Thus, new ventures, under the
challenge of high ambiguity and uncertainty,
may have an increasing demand for entrepreneurial
leadership (Chen, 2007). Therefore,
this research sheds light on the performance

mechanism of entrepreneurial leadership
to respond to the call that studies on the
leadership–performance relationship should
consider more leadership paradigms (Jing &
Avery, 2011).
Entrepreneurial Leadership and New
Venture Performance
New ventures often encounter large and experienced
competitors (Zahra & Bogner, 2000),
powerful suppliers (Delmar & Shane, 2004),
sceptical customers (Amason, Shrader &
Tompson, 2006), liabilities of newness (Ensley,
Pearson & Amason, 2002) and scarce resources
(Townsend, Busenitz & Arthurs, 2010), which
increase the failure rate of new ventures compared
with that of large established firms (Su, Xie & Li, 2011). The highly unpredictable environment
new ventures encounter highlights
the vital roles of leaders in the survival and
performance of new ventures (Swiercz &
Lydon, 2002; Townsend, Busenitz & Arthurs,
2010).
By articulating an exciting vision of the
future and carrying the burden of uncertainty
outcome to strengthen the confidence of
employees (i.e., absorbing uncertainty), entrepreneurial
leadership guides and inspires the
actions of followers in the uncertain future,
thereby enhancing the adaptability of new
ventures in the uncertain environment and
the pursuit of achievements (Baum, Locke &
Kirkpatrick, 1998; Cogliser & Brigham, 2004).
Moreover, by appealing to the needs of followers
(i.e., framing the challenge), and building
trust within the team (i.e., building commitment),
entrepreneurial leaders enable the
promotion of followers’ entrepreneurial selfefficacy
and team spirit (Breugst et al., 2012).
This implies that entrepreneurial leadership is
strongly connected with the growth potential
of a new venture (Kamm et al., 1990; Nicholas,
1993). In addition, based on effective negotiation
with internal and external environments
(i.e., underwriting), entrepreneurial leaders
can anticipate and address potential resistance,
obtain support from key stakeholders,
acquire critical resources and information, and
eliminate obstacles in the accomplishment of
desired goals. These actions will clear the path
for opportunity exploitation and value creation
(Kansikas et al., 2012; Prieto, 2010). In
addition, as rapid strategic decision makers
and facilitators to solve problems creatively
(i.e., defining gravity), entrepreneurial leaders
can effectively recognize and exploit entrepreneurial
opportunities (Ireland, Covin &
Kuratko, 2009), promote creativity of followers,
and enhance the innovative capability of
new ventures (Chen, 2007), which subsequently
result in superior performance
(Mueller, 2007; Puhakka, 2007). Therefore, we
propose the following hypothesis:
Hypothesis 1: Entrepreneurial leadership is
positively related to new venture performance.
Integrating Exploratory and Exploitative
Innovations into the Relationship between
Entrepreneurial Leadership and New
Venture Performance
Drawing on the strategic entrepreneurship
view, we further propose that exploratory and
exploitative innovations mediate the effect of
entrepreneurial leadership on new venture
performance. The role of exploratory and
exploitative innovations as mediators of the

process is supported by two aspects: (1) how
entrepreneurial leadership affects exploratory
and exploitative innovations, and (2) how
exploratory and exploitative innovations influence
new venture performance.
Entrepreneurial leaders are the main decision
makers and strategists who recognize
opportunity, assemble resources required to
pursue opportunities, develop an innovation
strategy to align resources for the exploitation
of opportunities, and design an organization
capable of executing an innovation strategy
(Hitt et al., 2011). Based on the strategic entrepreneurship
view, Ireland, Hitt and Sirmon
(2003) argue that effective entrepreneurial
leaders manage resources strategically and
entrepreneurially. In this view, entrepreneurial
leadership is the ability to influence others
to manage resources strategically to emphasize
both advantage-seeking (i.e., strategic
management) and opportunity-seeking (i.e.,
entrepreneurship) behaviours (Harms, Walsh
& Groen, 2012; Ireland, Hitt & Sirmon,
2003).
Advantage-seeking behaviours are highly
strategic, and emphasize adaptation to uncertain
environments (Wang, Tee&Ahmed, 2012).
These behaviours are particularly focused on
enhancing firms by exploiting market opportunities
and by introducing relevant new
products to maintain competitive advantage
(Gupta, MacMillan & Surie, 2004;Wang, Tee &
Ahmed, 2012). Exploitative innovation is built
on existing knowledge and reinforces existing
skills, processes and structures, such as by
improving established designs, expanding
existing products and services, and increasing
the efficiency of available distribution channels
(Benner & Tushman, 2003; Jansen, Van Den
Bosch & Volberda, 2006). Hence, advantageseeking
behaviours can boost exploitative
innovation (Schindehutte & Morris, 2009).
Unlike exploitative innovation, exploratory
innovation departs from existing knowledge,
offers new designs, creates new markets and
develops new channels of distribution (Benner
& Tushman, 2003; Jansen, Van Den Bosch &
Volberda, 2006). According to the literature,
opportunity-seeking behaviours are highly
related to entrepreneurship (Eckhardt &
Shane, 2003), encouraging firms to break new
ground, go beyond the known (Darling, Keeffe
& Ross, 2007), and move rapidly to gain firstmover
advantage in emerging new products
and/or new markets (Rauch et al., 2009).
Accordingly, opportunity-seeking behaviours
can facilitate exploratory innovation (Wang,
Tee & Ahmed, 2012). Therefore, we propose
that entrepreneurial leadership affects not only
the development of exploratory innovation,
but also that of exploitative innovation.

Further, the strategic entrepreneurship literature
argues that both types of innovation
are critical to firm growth and wealth creation
(Ireland & Webb, 2007; Li, Vanhaverbeke
& Schoenmakers, 2008). Although several
studies have assessed the relationship between
exploratory and exploitative innovations and
firm performance in large established firms
(Hoang & Rothaermel, 2010; Uotila et al.,
2009), few empirical studies have done so in
new ventures. Once the strategic decision
of the new venture is made, new venture performance
largely depends on the strategy
selected by the entrepreneurial leaders
(Sandberg & Hofer, 1988). Therefore, the effect
of exploratory and exploitative innovations on
new venture performance should be explored
in depth.
Exploratory innovation is characterized not
only by the accumulation of new knowledge
and the development of products and/or services
for emerging customers and markets,
but also by the identification of new opportunities
for value creation or opportunities not
satisfied by existing products (Benner &
Tushman, 2003). By accumulating new knowledge
and developing products and/or services,
a new venture can outperform its
competitors (Song & Di Benedetto, 2008; West
& Noel, 2009). By identifying new entrepreneurial
opportunities, a new venture can move
rapidly to gain first-mover advantages, which
can consequently increase the return on sales
and the market share of the firm (Kalita &
Ahuja, 2002). However, new ventures often
face the risk of having few products or
services, narrow markets and limited key
resources (Cooper, Gimeno-Gascon & Woo,
1994). Extensive exploration without the complementary
levels of exploitation is dangerous
and unprofitable because excessive emphasis
on exploratory innovation restricts the capability
of new ventures to sustain competitive
advantages and to fully appropriate the value
from exploratory activities (Auh & Menguc,
2005). By broadening existing knowledge and
skills, expanding existing products, and
increasing the efficiency and reliability of
available distribution channels, new ventures
can further profitably exploit mature markets
(Franke & Schreier, 2002). Returns from
exploitative innovation are positive, proximate
and predictable (Zhou &Wu, 2010). Therefore,
we propose the following hypotheses:
Hypothesis 2a: Exploratory innovation mediates
the relationship between entrepreneurial
leadership and new venture performance.
Hypothesis 2b: Exploitative innovation mediates
the relationship between entrepreneurial
leadership and new venture performance.

Potential Moderating Effects of
Environmental Dynamism
Both empirical and theoretical evidence suggests
that entrepreneurial leadership enhances
innovation and that innovation contributes to
new venture performance (e.g., Ireland, Hitt &
Sirmon, 2003). However, these effects occur
against a backdrop of powerful environmental
variables. Based on a multi-level perspective,
several researchers suggest that considering
variables operating at different levels of analysis
(e.g., individual, organization and environment)
considerably affects the understanding
of complex organizational processes, including
the development and growth of new ventures
(Baron & Tang, 2011; Hitt et al., 2007).
This study incorporates this perspective by
examining the potential moderating effects of
environmental dynamism on the relationships
between entrepreneurial leadership and innovation,
and between innovation and new
venture performance.
The nature of environmental dynamism is
primarily reflected by the considerable
amplitude and uncertainty of environmental
changes (Gebauer, 2008). A highly dynamic
environment is unpredictable and is filled
with rapid and dramatic changes (Baron &
Tang, 2011; Waldman et al., 2001). In changing
external conditions, organizational contexts
can be characterized by stress, anxiety and
risk (Aldrich, 1999; Miller, 2007). Therefore,
organizational members can shape a collective
feeling that an action must be carried out to
solve external problems (Hmieleski & Baron,
2009; Jansen, Vera & Crossan, 2009) and are
more receptive to the behaviours of leaders
(Shalley & Gilson, 2004). To actively motivate
organizational members, entrepreneurial
leaders must successfully change crises
into opportunities, and convey signals to
organizational members that encourage them
to challenge the status quo and pursue highrisk
projects by framing the challenge and
absorbing uncertainty (Gupta, MacMillan &
Surie, 2004). By building commitment and
defining gravity, entrepreneurial leaders can
encourage organizational members to consider
the highly dynamic environment as a
source of opportunity that will provide joy and
hope for the future (Alambeigi et al., 2012; Hitt
et al., 2011). In this sense, a highly dynamic
environment enables entrepreneurial leaders
to generate a collective feeling that exploratory
innovation is necessary in handling external
changes.
Conversely, a stable environment creates an
organizational context characterized by certainty,
predictability and routine situations
(Dess & Beard, 1984; Hmieleski & Baron, 2009;

Jansen, Vera & Crossan, 2009). In this environment,
organizational members feel little ambiguity
and exert minimal pressure on leaders to
respond with established knowledge, skills
and related processes. In an environment characterized
by low levels of change and uncertainty,
entrepreneurial leadership can leverage
existing knowledge and send signals that
enable incremental improvements to products
and services (Ireland, Hitt & Sirmon, 2003;
Wang, Tee & Ahmed, 2012). Therefore, under
stable external conditions, entrepreneurial
leadership is effective in clarifying procedures
and in emphasizing the need for exploitative
innovation and its rewards. Therefore, we
propose the following hypotheses:
Hypothesis 3a: Environmental dynamism moderates
the relationship between entrepreneurial
leadership and exploratory innovation such that
the relationship is stronger under a dynamic
environment than a stable environment.
Hypothesis 3b: Environmental dynamism moderates
the relationship between entrepreneurial
leadership and exploitative innovation such that
the relationship is weaker under a dynamic environment
than a stable environment.
The relationship between the two innovations
and new venture performance may also be
moderated by environmental dynamism. The
crucial element of environmental dynamism
is not frequency or amplitude but the uncertainty
of environmental changes, such as
changes in technologies, variations in customer
preferences and fluctuations in product
demand (Boyne & Meier, 2009; Milliken, 1987).
In a dynamic environment, new ventures confront
the challenge that existing products
and/or services deteriorate quickly and earnings
quickly diffuse to rivals (Sorensen &
Stuart, 2000; Zahra & Bogner, 2000). To minimize
the loss of advantage, new ventures
should exert great efforts to design and introduce
exploratory innovation (Jansen, Van Den
Bosch & Volberda, 2006; Zahra & Bogner,
2000). Consequently, new ventures that pursue
exploratory innovation capitalize on a highly
dynamic environment by building new products
and services to meet an extremely variable
customer need (Yang & Li, 2011) and to create
opportunities for above-normal returns by
targeting premium market segments (Jansen,
Van Den Bosch & Volberda, 2006). Hence, in a
dynamic environment, new ventures that
focus on exploratory innovation obtain competitive
advantages by offering advanced
products that surpass existing ones or by targeting
premium market segments to enhance
performance (Liu, Luo & Huang, 2011). Conversely,
new ventures that emphasize exploitation

innovation do not acquire new skills and
are captive of outdated practices, knowledge
and resources, which impair performance
(Uotila et al., 2009).
In a stable environment, there is less uncertainty
about future directions and few environmental
disturbances (Rowley, Behrens &
Krackhardt, 2000). New ventures that devote
many resources to exploratory innovation
incur substantial costs for novel information
and knowledge that may not be worthwhile
(Yang & Li, 2011). Meanwhile, new ventures
that pursue exploitative innovation consistently
improve at performing routines
(Sorensen & Stuart, 2000), and subsequently,
stabilize their cash flow (Jansen, Van Den
Bosch & Volberda, 2005). Based on this argument,
we propose the following hypotheses:
Hypothesis 4a: Environmental dynamism
moderates the relationship between exploratory
innovation and new venture performance
such that the relationship is stronger under
a dynamic environment than a stable
environment.
Hypothesis 4b: Environmental dynamism moderates
the relationship between exploitative
innovation and new venture performance such
that the relationship is weaker under a dynamic
environment than a stable environment.
Method
Sample and Data Collection
A questionnaire survey was conducted to
collect data. Our target samples were new
ventures. We chose to conduct the survey in
China because Chinese entrepreneurial activity
has increased and its share in economic
output is substantial (Zhai, Su & Ye, 2014). In
the present study, we adopted Chen’s (2007)
criteria for selecting new ventures: these firms
are currently tenants in incubators, have been
established for less than 10 years, and have
not yet matured to initial public offering.
However, obtaining data through a questionnaire
survey in China is difficult (Zhu &
Sarkis, 2004). Thus, we worked with a Chinese
educational institution to make our survey
feasible. This institution is well known for
its executive training programmes, especially
the training of entrepreneurial management
concepts. In addition, some new ventures
were reached through the personal networks
of the researchers. Then, in each of these firms,
we identified one senior executive to serve
as a key informant. The respondents were
informed that their participation was voluntary
and confidential. Although the use of
a single respondent may not be ideal for

firm-level research, this data collection
method is common among recent empirical
studies on entrepreneurship (e.g., Chen, 2007;
Kamm & Nurick, 1993).
We initially distributed 250 questionnaires.
A total of 181 responses were received, representing
a response rate of 72.4 per cent. Data
with missing values were discarded before
conducting the analysis. Finally, a total of 168
responses were deemed useful. Of the 168
respondents, 79.2 per cent were male. Regarding
the level of education of the respondents,
81.4 per cent held a college degree or higher.
The age of the ventures ranged from 1 year to
9 years, with an average of 5.2 years. Table 2
shows the demographic information of the
sample.
Measures
We developed an English-language questionnaire
and had the questionnaire translated
into Chinese by a team of three researchers
of different majors. All the items in the
questionnaire were measured on a sevenpoint
Likert scale ranging from ‘strongly disagree’
to ‘strongly agree’. All of these items
were adopted from the existing literature.
The Appendix shows the items in the
questionnaire.
Entrepreneurial leadership was measured
by 26 items adapted from Gupta, MacMillan
and Surie (2004). This measurement approach
incorporates five dimensions, namely, framing
the challenge, absorbing uncertainty, underwriting,
building commitment and defining
gravity.
Exploratory innovation was assessed using
Jansen, Vera and Crossan (2009)’s six-item

scale that captured the extent to which units
depart from existing knowledge and pursue
innovation for emerging customers or
markets.
Exploitative innovation was measured using
Jansen, Vera and Crossan (2009)’s six-item
scale that captured the extent to which units
build on existing knowledge and meet the
needs of existing customers.
Environmental dynamism was measured by
five items adopted from Jansen, Vera and
Crossan (2009). The five-item scale tapped into
the rate of change and the instability of the
external environment.
New venture performance. According to the
literature, financial performance is used to
measure new venture performance (Zahra,
1991). However, growth is often used as a
proxy of new venture performance (Hmieleski
& Baron, 2009). Growth performance is considered
as more accurate and accessible than
accounting measures of financial performance
(Wiklund & Shepherd, 2005). A firm may
choose to trade off long-term growth for shortterm
profitability (Zahra, 1991). Therefore, the
requirement of using multiple measures to
capture the multifaceted nature of firm performance
has been widely accepted (Kollmann &
Stöckmann, 2014; Wiklund & Shepherd, 2005).
In the current study, we combined measures of
growth and financial performance which
include nine items adopted fromWiklund and
Shepherd (2005) and Li and Atuahene-Gima
(2001).
Control variables. We controlled for possible
alternative explanations by including relevant
control variables. The literature has suggested
controlling for the age and size of new ventures,
because both variables may be associated
with exploration and exploitation as well
as performance (Jansen, Van Den Bosch &
Volberda, 2006; Kollmann & Stöckmann,
2014). We included the natural logarithm of
the number of full-time employees to account
for firm size.We also included age by incorporating
the number of years since the firm was
founded. As the existing literature suggests
the effect of industry type on firm performance
(Chen & Huang, 2009; Yang & Li,
2011), we also included five industry types
(manufacturing industry, trade/service industry,
high-technology industry, real estate/
construction industry, and others) to control
for potential effect of industry type. Following
Yang and Li (2011), four industry dummy variables
were created by using the other types as
the base group.
Confirmatory factor analysis was performed
to assess the reliability and validity of the
multi-item measurement scale. To preserve
adequate statistical power, we modelled

first-order variables as indicators of secondorder
variables (Wang & Rode, 2010). Table 3
shows that Cronbach’s alpha ranges from
0.81 to 0.90, which indicates that all variables
have acceptable reliability. We tested the convergent
validity of the measurements. All item
loadings are higher than the 0.60 criterion.
Table 3 also shows that composite reliability
ranges from 0.82 to 0.92, which exceeds the
recommended level of 0.70. Each construct’s
average variance extracted (AVE) score ranges
from 0.54 to 0.75, which is higher than the
0.50 criterion. These results indicate that the
convergent validity of our measurement
instrument is acceptable. We also report the
fit indices for our measurement. The measurement
model results indicate a good
fit to the data (χ2 = 376.32, df = 159, RMSEA =
0.06, GFI = 0.93, CFI = 0.97, SRMR = 0.06,
RMR = 0.04).
Test for Common Method Bias
As our data were collected using the same
questionnaire, it is possible that common
method bias could have been a problem for
respondent scales. We conducted two tests.
First, we performed Harmon’s single-factor
test for common method bias. The results
showed that the test can categorize the items
into nine constructs with eigenvalues greater
than 1.0, thus accounting for 71.2 per cent of
the variance. The first construct accounts for
12.8 per cent of the variance, indicating that
common method bias is not a serious concern
in the present study. Second, following
Podsakoff et al. (2003) and Liang et al. (2007),
we included a method factor in the measurement
model to explain the relative variance by
substantive factors and the method factor. The
substantive constructs explained 58.82 per
cent of the variance, and the method factor
explained 1.46 per cent. The ratio of substantive
variance to method variance is approximately
40:1. Therefore, common method bias
was unlikely to be a serious concern for this
study.

Results
The means, standard deviations and correlations
for all variables are reported in Table 4.
As indicated in Table 4, entrepreneurial leadership
is positively associated with both
exploratory and exploitative innovations, and
exploratory and exploitative innovations
are both positively related to new venture
performance.
We ran hierarchical regression analyses
to test the hypotheses. We adopted the procedures
developed by Muller, Judd and
Yzerbyt (2005) and Baron and Tang (2011) to
examine three particular conditions: (1) a significant
effect of entrepreneurial leadership
on new venture performance; (2) significant
effects of entrepreneurial leadership on
exploratory and exploitative innovations, and
significant interactions between entrepreneurial
leadership and environmental dynamism
predicting exploratory and exploitative innovations;
and (3) significant effects of exploratory
and exploitative innovations on new
venture performance, and significant interactions
between exploratory and exploitative
innovations and environmental dynamism
predicting new venture performance. We also
calculated variance inflation factors (VIF) to
assess multicollinearity. None of the VIFs in
the regression models were above two, and so
were well below the rule-of-thumb cut-off of
10 (Chatterjee & Price, 1991).
Hypothesis 1 predicts that entrepreneurial
leadership is positively related to new venture
performance. Results relevant to this hypothesis
are presented in Model 7 of Table 5, which
indicate that entrepreneurial leadership is significantly
related to new venture performance
(β = 0.35, p < 0.01).
As shown in Models 1 and 4 of Table 5,
entrepreneurial leadership is significantly
related to exploratory innovation (β = 0.53,
p < 0.01) and exploitative innovation (β = 0.51,
p < 0.01). Further, Models 7 and 8 in Table 5
reveal that the coefficient for entrepreneurial
leadership on new venture performance

becomes insignificant when the effects of
exploratory innovation and exploitative innovation
are included in the regression equation.
The coefficient decreases from 0.35 (p < 0.01
in Model 7) to 0.11 (n.s. in Model 8). The
bootstrapping approach recommended by
Preacher and Hayes (2004, 2008) indicated that
the indirect relationship that entrepreneurial
leadership had with new venture performance
via exploratory and exploitative innovations
was significant. Specifically, for exploratory
innovation, the 95 per cent CI of the indirect
relationship was (0.07, 0.26), not containing
zero; for exploitative innovation, the 95 per
cent CI of the indirect relationship was (0.03,
0.26), which also excluded zero. These results
support Hypotheses 2(a) and 2(b).
As shown in Models 3 and 6 of Table 5,
results offer support for Hypothesis 3 (for
exploratory innovation, β = 0.12, p < 0.05; for
exploitative innovation, β = −0.13, p < 0.01).
Consistent with the predictions in Hypotheses
3(a) and 3(b), the link between entrepreneurial
leadership and exploratory innovation is
indeed stronger in the presence of high than
low dynamism, while the link between entrepreneurial

leadership and exploitative innovation
is weaker in the presence of high than
low dynamism. To facilitate the interpretation
of the interaction, as Aiken and West (1991)
recommended,we plotted the simple slopes for
the relationship between entrepreneurial leadership
and exploratory/exploitative innovation
at one standard deviation above and below
the mean of environmental dynamism. The
results as shown in Figure 1 suggest that in
keeping with Hypothesis 3(a), environmental
dynamism strengthened the association
between entrepreneurial leadership and exploratory
innovation. To test this interpretation,
we statistically compared the two slopes to
zero. As expected, entrepreneurial leadership
significantly predicted exploratory innovation
(simple slope = 0.47, p < 0.01) at low environmental
dynamism, and was also significant
(simple slope = 0.63, p < 0.01) at high environmental
dynamism. As expected from
Hypothesis 3(b),wefound moderation by environmental
dynamism of the relationship
between entrepreneurial leadership and exploitative
innovation (Figure 2). Simple slope
analysis showed that the relationship between

entrepreneurial leadership and exploitative
innovationwas significant (simple slope = 0.62,
p < 0.01) at low environmental dynamism, but
became weak (simple slope = 0.42, p < 0.01) at
high environmental dynamism.
Hypotheses 4(a) and 4(b) predict a moderating
role of dynamism with respect to
the relationship between exploratory and
exploitative innovations and new venture performance.
Model 9 in Table 5 shows that the
effects of the interactions between exploratory
and exploitative innovations and environmental
dynamism were not significant (for
exploratory innovation, β = 0.00, n.s.; for
exploitative innovation, β = 0.12, n.s.). Thus,
Hypotheses 4(a) and 4(b) were not supported.
As the first stage of the mediation model
is moderated on environmental dynamism,
it is also likely that environmental dynamism
will conditionally influence the strength of
the indirect relationship between entrepreneurial
leadership and new venture performance.
We further examine whether the
indirect effects differ depending on environmental
dynamism. Following the bootstrapping
procedure recommended by Preacher,
Rucker and Hayes (2007), we quantified the
indirect effects at low (−1SD), and high
(+1SD) levels of environmental dynamism.
The results confirmed the non-significance of
the indirect relationship that the interaction
term (entrepreneurial leadership × environmental
dynamism) had with new venture
performance. Specifically, for exploratory
innovation, the 95 per cent CI of the indirect
relationship was (−0.06, 0.53), containing zero;
for exploitative innovation, the 95 per cent CI
of the indirect relationship was (−0.25, 0.27),
which also included zero. Therefore, our
results confirmed only that environmental
dynamism moderates the relationship
between entrepreneurial leadership and
exploratory and exploitative innovations.
Discussion
Although the importance of entrepreneurial
leadership in new ventures has been
highlighted (Chen, 2007; Sundararajan,
Sundararajan & Henderson, 2012), the performance
mechanism of entrepreneurial leadership
remains unclear. This study developed an
integrated conceptual model to propose that
the relationship between entrepreneurial leadership
and new venture performance is more
complex than previous research has indicated.
In this study, we found that entrepreneurial
leadership is positively related to new venture
performance (Hypothesis 1). Moreover, we
found support for Hypotheses 2(a) and 2(b)

that exploratory and exploitative innovations
act as mediating mechanisms between entrepreneurial
leadership and new venture performance.
In addition, our analysis supported
Hypotheses 3(a) and 3(b) and thus addressed
the missing role of context in the effectiveness
of leadership (Ensley, Pearce & Hmieleski,
2006; Hmieleski & Ensley, 2007). Specifically,
our results demonstrated that a highly
dynamic environment can amplify the relationship
between entrepreneurial leadership
and exploratory innovation but can attenuate
the relationship between entrepreneurial
leadership and exploitative innovation. The
results explored how entrepreneurial leaders
coordinate the development of exploratory
and exploitative innovations and successfully
respond to environmental conditions.
Contrary to our prediction (Hypothesis 4a),
pursuing exploratory innovation in a dynamic
environment does not significantly increase
new venture performance.A possible explanation
for the deviation is that the duration of
environmental dynamism also exerts influence.
During long-term environmental dynamism,
for instance, new ventures may be
trapped in the endless invention of new products,
services and processes (Jansen, Van Den
Bosch & Volberda, 2006). However, new ventures
often encounter resource scarcity (Brush,
Manolova & Edelman, 2008). New ventures
executing excessive exploratory innovation for
a long time increase risks and financial burden
fornewventures (Prabhu, 1999).Although pursuing
exploratory innovation may be beneficial
during short periods of dynamism, it also
adversely influences new venture performance
in the long term. Inconsistent with Hypothesis
4b, pursuing exploitative innovation in a
dynamic environment does not significantly
decrease new venture performance. Similarly,
pursuing exploitative innovation during long
periods of environmental dynamism may be
crucial in achieving optimal resource allocation
that will assist a firm in maintaining its core
competencies to effectively accommodate
exploration (Yang & Li, 2011).
Theoretical Implications
This study has several theoretical implications.
First, past research has devoted little
attention to the performance mechanism of
entrepreneurial leadership (Wang & Yang,
2006; Wang, Tee & Ahmed 2012). The current
study broadens the focus of entrepreneurial
leadership research and presents a more
complex scheme on how entrepreneurial
leadership influences new venture performance.
This paper addresses not only the
call for more leadership paradigms to be

considered in the leadership–performance
relationship (Jing & Avery, 2011), but also
the call for more empirical research that
highlights the importance of leadership
in the entrepreneurial context (Chen, 2007;
Townsend, Busenitz & Arthurs, 2010).
Second, we have revealed the influence of
entrepreneurial leadership on new venture
performance by introducing exploratory and
exploitative innovations as underlying mediation
mechanisms. This paper addresses not
only the call for more research examining
how leaders impact organizational level processes,
such as innovation (Jansen, Vera &
Crossan, 2009; Waldman et al., 2001; Yukl,
1999), but also the call of Ireland, Hitt and
Sirmon (2003) for empirical research as necessary
to understand how entrepreneurial
leaders manage resources strategically to
create competitive advantages. Moreover, our
results provide evidence for Levinthal and
March’s (1993) notion that the survival and
success of an organization depend on the
ability to emphasize both exploitation to
ensure the organization’s current viability,
and exploration to ensure future viability.
Additionally, this paper enriches existing
leadership studies on firm innovation (Lin &
McDonough, 2011; Rickards & Moger, 2006)
by identifying entrepreneurial leadership
as a salient antecedent of exploratory and
exploitative innovations.
Finally, we extended the leadership literature
by examining the interactions between
leadership and environmental dynamism
(Hmieleski & Ensley, 2007; Waldman et al.,
2001). Our results indicated that, although the
link between entrepreneurial leadership and
the two types of innovation is strong, the
link between entrepreneurial leadership and
exploratory innovation is amplified when
environmental dynamism is high whereas that
between entrepreneurial leadership and exploitative
innovation is amplified when environmental
dynamism is low. This finding is
important because it provides support for the
value in contextual models of entrepreneurial
leadership. Further, transformational leadership
is highly related to exploratory innovation
when the organization’s environment is perceived
as dynamic; transactional leadership
is highly related to exploitative innovation
when the organization’s environment is perceived
as stable (Jansen, Vera & Crossan, 2009).
Our findings also provided potential evidence
that entrepreneurial leadership often changes
from transformational to transactional leadership
style depending on the environmental
needs of the new venture (Sundararajan,
Sundararajan & Henderson, 2012; Yildirim &
Saygin, 2011).

Practical Implications
Our findings also have several practical implications.
First, our results indicate the importance
of entrepreneurial leadership for the two
types of innovation and new venture performance,
outcomes of great interest for managers.
Thus, new ventures may find it useful to
emphasize leader selection and development
so that entrepreneurial leadership behaviours
are exhibited by leaders. The new ventures
and their leaders can seek entrepreneurial
leadership training programmes, such as the
coherent leadership development strategy for
UK small and medium enterprises developed
by the Council for Excellence in Management
and Leadership (CEML) in the UK (CEML,
2002). The literature has suggested that
through leadership training programmes,
leaders can learn to be more effective to
display entrepreneurial leadership (Vecchio,
2003). For example, entrepreneurial leaders
should concentrate their efforts on developing
a vision, actively communicating the vision to
their followers, and inspiring followers to
pursue the shared vision. Moreover, entrepreneurial
leaders should pay attention to team
building, such as appealing to the higher
needs of followers, instilling loyalty among
them, and promoting their entrepreneurial
self-efficacy.
Second, the results suggest that leaders of
new ventures should not only learn about
entrepreneurial leadership competencies, but
also assist other groups of people such as aspiring
entrepreneurs, venture capitalists and
teachers of entrepreneurial education. For
example, individuals who aspire to become
entrepreneurial leaders can prepare for the
transition and seek resource support. They can
participate in assessment centre activities (e.g.,
in-depth interviews, decision-making exercises
and situational tests), to assess their
strengths and weaknesses and acquire counselling.
Venture capitalists can also make more
informed choices about entrepreneurial leadership
competency requirements of entrepreneurs.
Moreover, teachers can develop university
entrepreneurship programmes through
which students can lead an entrepreneurship
project, play the roles of entrepreneurial
leaders, and experience the responsibilities and
challenges in performing the tasks.
Finally, our results show that the relationship
between entrepreneurial leadership and
the two types of innovation is not a static situation,
and that leaders should consider environmental
dynamism. Through management
development programmes, leaders could be
aware of the level of dynamism in the environment
such as changes in technologies

customer preferences and market demand.
Leadership training can therefore be complemented
by management development efforts.
For example, in adjusting to the external environment
filled with rapid and dramatic
changes, entrepreneurial leaders should allocate
more resources to developing new products,
services and channels, and encourage
followers to challenge stereotypes. By contrast,
when the external environment is characterized
by low levels of change and uncertainty,
entrepreneurial leaders should invest more
resources in increasing the efficiency of existing
products, services and channels, and
promoting employees’ commitment to accomplish
the adaptive transformation of existing
products and services.
Limitations and Future Research
Our study has several limitations, which also
present opportunities for future research.
First, this study examined exploratory and
exploitative innovations separately, but not
their interaction. The existing literature has
suggested that leadership characteristics may
influence the balance of the two innovations,
which is desirable for the performance of
resource-constrained firms (Cao, Gedajlovic &
Zhang, 2009; Raisch & Birkinshaw, 2008). To
further understand the inner workings of
entrepreneurial leadership, future research
may consider the role of leaders in balancing
the two innovations.
Second, contrary to our prediction, our
results did not support the moderation of
environmental dynamism on the link between
exploratory and exploitative innovations and
new venture performance. We associated this
deviation with the effect of the duration of
environmental dynamism. To further investigate
the moderating role of environmental
dynamism, future research should include a
measurement of the duration of environmental
dynamism.
Third, the sample used in this study may be
a limitation. The data are gathered from a
sample of firms in China. The national context
of the respondents may limit the generalizability
of the findings. Therefore, researchers
should be cautious in formulating generalizations
from the findings of this study to other
national contexts. Future research can focus on
other national contexts.
Fourth, several of the measures employed
were self-report in nature (e.g., innovation,
performance). Although these measures were
adopted from previous research and have
been shown to possess acceptable reliability
and validity, the constructs of primary interest
(innovation, performance) are complex.

Future research may benefit from employing
objective measures for these variables.
Lastly, we relied on informants, rather than
archival data, for reporting the objective performance
measures, which makes it difficult
to infer the causality between the variables in
this study (Wang & Chen, 2011; Wang, Tee &
Ahmed, 2012; Yang & Li, 2011). Therefore, a
longitudinal study that can better reflect the
causal relationships between the variables
should be conducted.
Limitations aside, our study provides new
insights into the performance mechanism of
entrepreneurial leadership in new ventures.
Given the practical importance of leadership
in the entrepreneurial context, we hope that
this study will serve as an impetus for future
research to further explore the role of entrepreneurial
leadership in entrepreneurial processes
and outcomes.
Acknowledgements
We wish to thank the reviewers for valuable
suggestion and advice, which led to the
improvement of this paper. The research was
funded by Specialized Research Fund for the
Doctoral Program of Higher Education of
China (20133402110040).
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Shenglan Huang ([email protected]
.cn) received her masters degree in Applied
Mathematics from Anhui University in

  1. She is currently a PhD candidate in
    the School of Management, University of
    Science and Technology of China. Her
    major is Business Administration. Her
    research interests include leadership theory
    and entrepreneurship management.
    Donghong Ding ([email protected]) received
    his PhD degree from the School of
    Business, Nanjing University, China in
  2. He is now a professor and PhD
    supervisor in the School of Management,
    University of Science and Technology of
    China. His research interests include the
    leadership theory and entrepreneurship
    management.
    Zhi Chen ([email protected]) is a
    PhD candidate in the School of Management,
    University of Science and Technology
    of China. His major is Business Administration.
    His research interests include team
    innovation, organizational innovation and
    entrepreneurship.