Three-way interaction effect of entrepreneurial orientation, CEO power, and organizational slack on Indonesian firms’ performance

Abstract

This study aims to explore the complex interplay between entrepreneurial orientation, CEO power, and organizational slack, and their collective impact on firm performance within Indonesia’s manufacturing sector, providing actionable insights to optimize operations in a dynamic, resource-constrained environment. The paper employs a longitudinal approach, utilizing dynamic panel data from 127 publicly-traded manufacturing companies listed on the Indonesia Stock Exchange from 2014 to 2022, focusing on this sector due to its significant role in Indonesia’s economy and the unique challenges these firms face in adapting to market changes and competitive pressures. The study initially found that entrepreneurial orientation did not significantly influence firm performance. However, when CEO power was introduced into the analysis, it significantly, albeit negatively, moderated the effect of entrepreneurial orientation, suggesting that higher CEO power may actually diminish beneficial impacts of entrepreneurial orientation on performance (β = –48.041, p < 0.05). Importantly, the analysis revealed that organizational slack can positively interact with both entrepreneurial orientation and CEO power, mitigating this negative influence and enhancing firm performance (β = 15.261, p < 0.05). These findings illuminate the complex interdependencies within strategic management, underscoring the necessity of aligning upper echelon power dynamics with organizational resources. This alignment is crucial for leveraging the full potential of entrepreneurial orientation to enhance firm performance. AcknowledgmentsThis study received sponsorship from Beasiswa Pendidikan Indonesia and Lembaga Pengelola Dana Pendidikan (Indonesia Endowment Fund for Education). The support from these organizations has been invaluable in the completion of this work, enabling comprehensive data collection and analysis crucial to complete the study.