Entrepreneurial Orientation and Environmental Hostility: A Threat Rigidity Perspective

We posit that environmental hostility exhibits an inverse U-shaped relationship with a firm’s entrepreneurial orientation. We suggest a nuanced perspective on the threat rigidity argument that firms generally retrench from entrepreneurial capital allocation behaviors as hostility increases. We argue that firms are likely to act opportunistically and increase EO, but only to the point where the marginal costs of such activity outweigh the marginal benefits, at which point EO drops precipitously. Analyzing 60,440 observations from 6,481 firms across 373 industries from 1998 through 2017, our results indicate that EO exhibits a generally negative relationship with environmental hostility. Further, we examine a potential moderating influence of recoverable slack on the hostility–EO relationship, arguing that recoverable slack represents a meaningful buffer on behavioral change stemming from changing environmental hostility.