This study examines the relationship between entrepreneurial orientation (EO) and innovation performance (IP) using a sequential mediation model of absorptive capacity (AC) and innovation capability (ICAP). We conduct a literature review, develop and test hypotheses using structural equation modelling (SEM) and data collected from 225 Saudi small and medium enterprises (SMEs) operating in several sectors in Saudi Arabia. The findings reveal statistically significant relationships between the EO dimensions (proactive innovativeness and risk-taking) and AC and ICAP. However, no direct relationship is found between the EO dimensions and IP. Therefore, AC mediates the relationship between the EO dimensions and ICAP. In addition, ICAP mediates the relationship between the EO dimensions and AC to IP, while AC does not mediate the relationship between the EO dimensions and IP. To the best of our knowledge, limited research has simultaneously explored the impact of EO, AC, ICAP, and IP in the Saudi context. Our study adds to the existing body of knowledge in the fields of entrepreneurship, innovation, and strategic management by providing empirical evidence specific to the Saudi context. It also displays the significance of managers turning strategic EO dimensions into innovation outcomes through AC and ICAP as a contribution to managerial practices.
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