Group Decis Negot

https://doi.org/10.1007/s10726-018-9566-x

Learning Orientation and Performance Satisfaction as

Predictors of Small Firm Innovation: The Moderating
Role of Gender

Raj V. Mahto1 · William C. McDowell2 · Jerry Kudlats3 ·

Timothy C. Dunne4

© Springer Science+Business Media B.V., part of Springer Nature 2018

Abstract Research on innovation in the context of small entrepreneurial firms is lim-

ited. Limited available studies on innovation in small firms are devoted mostly to firms
operating in knowledge-intensive or technology industries and ignore the vast major-
ity of small firms operating in traditional and less knowledge-intensive sectors of the
economy. The rapid pace of technological change and the intensifying environmental
turbulence in our economy influence all firms, including the majority of small firms
that are perishing at a faster rate. Innovation is a key competitive tool for survival in
a turbulent environment. Thus, it is important to understand factors influencing inno-
vation in small firms. In this paper, we explore how learning orientation, a small-firm
owner’s satisfaction with firm performance, and the firm owner’s gender influence
innovation in small firms. We test the proposed model on a sample of small firms
located in the United States of America.

Keywords Innovation · Learning orientation · Satisfaction with performance ·

Gender and small firms

B William C. McDowell
wmcdowell@bradley.edu

1 University of New Mexico, Albuquerque, NM, USA

2 Bradley University, Peoria, IL, USA
3 Jacksonville University, Jacksonville, FL, USA
4 Boise State University, Boise, ID, USA

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1 Introduction

Small firms, being the largest private employer in most countries across the globe,
play a critical role in growth and development of a region. Further, these entities are
responsible for producing a significant portion of a country’s Gross Domestic Product
(GDP). In the United States of America, a small firm is defined as a manufacturing
entity with fewer than 500 employees or a service firm with revenues lower than $7.5
million (US Small Business Administration 2010). In the United States, small firms are
the engine of economic growth and the largest private-sector employer; small firms
represent 99.7% of employer firms in the U.S. economy, generating about 64% of
private employment. Even among small firms, there is a considerable heterogeneity
based on firm size. A majority of small firms are considerably smaller and resem-
ble micro-firms with fewer than fifty employees (Wheelen and Hunger 1999). These
firms have limited resources and operate mostly in less knowledge-intensive sectors
of an economy. For example, in the United States, small firms with fewer than sixty
employees constitute over 90% of all firms (US Small Business Administration 2010).
Economies of major countries around the globe resemble the U.S. economy in terms of
small firms. The health and growth of the U.S. economy or other countries’ economies
depend on the health of such small firms, but there is a paucity of academic research
devoted to such firms.
Small firms, unlike medium and large firms, face many significant challenges in
competing and surviving in an increasing global economy (Terziovski 2010), prompt-
ing some small-firm managers and owners to build relationships with other firms to
survive (Murphy and Tocher 2017; Welbourne and Pardo-del-Val 2009). Furthermore,
a small firm’s resource constrains, scarce talent pool, low brand equity, informal orga-
nizational structure, and reactive operating strategy (Qian and Li 2003) make the task
of managing and operating such firms extremely challenging. Other disadvantages
associated with the “liability of smallness” (Zacharakis, Meyer, and DeCastro 1999)
exacerbate existential challenges for firms facing a high mortality rate (Terziovski
2010). For example, in the United States, one out of every four small firms faisl within
the first 2 years of existence, while over 60% fail within first 6 years (Wheelen and
Hunger 1999). Small firms face similar odds of survival in other countries, including
Australia, England, and Japan (Lu and Beamish 2001). The spread of hypercompet-
itive pressure, characterized by short product and business life cycles (Hamel 2000)
and intense competitive rivalry (Wiggins and Ruefli 2005) in different industries make
a small firm’s survival challenge even more daunting. In a hypercompetitive and tur-
bulent environment, scholars suggest that innovation is the key tool available to small
firms seeking to survive and prosper (Dess and Picken 2000; D’Aveni 2010; Mahto
et al. 2017; Terziovski 2010; Wilkens 1987).
Unfortunately, our understanding of the “what, why, and how” of innovation in the
context of small firms is limited. The majority of research on innovation is focused on
large firms or technology-based entrepreneurial firms, ignoring small firms, especially
small firms with fewer than sixty employees, in traditional sectors of our economy
(Crossan and Apaydin 2010; De Massis et al. 2013; Terziovski 2010). Innovation,
which we define as the adoption of a new idea or behavior by a firm (Daft 1978;
Damanpour and Evan 1984; Nasution et al. 2011), is a high-risk endeavor requiring a

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significant commitment of financial and human resources. Small firms, with limited
resources and high mortality risk, are not an ideal context to explore innovation con-
cepts (Chandy and Tellis 2000). In addition, resource constraints limit a small firm’s
ability to recover and learn from failures associated with high-risk endeavors, such as
innovation (Yap and Souder 1994; Kalleberg and Leicht 1991). However, considering
the importance of small firms to our economy and the challenges such firms are expe-
riencing, it is essential to enhance our understanding of the drivers of innovation in
such firms. In this study, we intend to address this important void in our understanding.
In this paper, we draw from extent literature on innovation in management and
marketing disciplines to develop a conceptual model for innovation in small firms.
We propose that learning orientation (LO), which we define as an organization’s val-
ues about and shared perceptions of learning and skill development (Bunderson and
Sutcliffe 2003; Wang 2008), and a firm owner’s satisfaction with their firm’s past per-
formance (hereafter referred to as Performance Satisfaction) will impact small-firm
innovation. Moreover, we draw on extent literature on gender in entrepreneurship and
small business to argue that the firm owner’s gender will moderate the relationship
between predictors (LO and Performance Satisfaction) and firm innovation. We test
our model by surveying a sample of small firms from the southwestern part of the
United States.
Our study makes four significant contributions to the literature on innovation and
small firms. First, our study sheds light on innovation in small firms operating in
traditional non-technology sectors of an economy. This enhances our understanding
of factors influencing innovation in non-technology-based small firms. Second, like
innovation, the LO concept has remained unexplored in the context of small firms
in non-technology sectors (Keskin 2006; Wang 2008), so our study builds the initial
framework for furthering our knowledge. Third, our study links innovation in small
firms to a firm owner’s or manager’s performance satisfaction and gender. Even though
the link between innovation and an owner’s gender has been investigated previously,
to best of our knowledge, a firm owner’s performance satisfaction has unexplored. It
addresses Mahto et al.’s (2010) call for more research on a firm owner’s or manager’s
performance satisfaction in a small-business context. Finally, our study proposes and
tests small firm owners’ gender as a contingency for a relationship between predictors
(LO and Performance Satisfaction) and firm innovation; it is important to assess this
relationship considering the significant increase in women-owned businesses (Gupta
et al. 2009).
We proceed by providing a brief overview of the literature on innovation, LO, and
performance satisfaction followed by arguments for our proposed hypotheses and the
conceptual model. We then introduce the literature on the demographics of owner
gender to provide an explanation of variability in male and female owners. Next, we
explain the methods utilized in our study, including the sample and measures, followed
by the results from our analyses. We then discuss the findings from the study and the
corresponding implications. We conclude the paper by listing study limitations and
offering future research directions.

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2 Literature Review

As hypercompetition is gripping various sectors of our economy (Christensen and

Raynor 2003; Wiggins and Ruefli 2005), the importance of innovation as a compet-
itive tool has increased significantly (Hult et al. 2004; Nasution et al. 2011). The
recognition has led to a significant growth of literature on innovation over last few
decades (Markin et al. 2017) and a stronger emphasis on innovation in educational
settings (Olugbola 2017; Schenkel et al. 2015). Scholarly enquiry on innovation has
focused on examining innovation inputs (e.g., R&D expenses), actors (e.g., CEOs,
leaders, or entrepreneurs) and activities (e.g., firm culture or values), and/or innova-
tion outcomes (e.g., performance) (Carmelo-Ordaz et al. 2014; De Massis et al. 2013).
However, despite a rapid advancement in our understanding of innovation concepts,
a majority of small firms, especially firms with fewer than sixty employees and oper-
ating in traditional sectors (De Winne and Sels 2010), have failed to benefit or utilize
this knowledge. This underutilization is also due, in part, to the fact that a majority
of research on innovation has been conducted on either large firms or entrepreneurial
ventures in high-tech industries (Crossan and Apaydin 2010; De Massis et al. 2013;
Terziovski 2010). The absence of dedicated efforts to generate new knowledge, like a
separate R&D department in a large firm and in high-technology firms, and the con-
straints of limited resources may cause the omission of small firms from the literature.
Limited studies on innovation in small firms focus mostly on primary repositories
of knowledge such as those possessed by CEOs and other managers (Andries and
Czarnitzki 2014). Studies have shown that employees and firm owners or managers
are critical to innovation in small firms (Slevin and Terjesen 2011). For example,
Klaas et al. (2010) found a positive influence of a small-firm CEO on firm innovation,
discovering that small firms differ from their larger counterparts in the methods they
adopt to diffuse organization innovations. Additionally, Andries and Czarnitzki (2014)
found empirical support for a positive influence of non-managerial employees on
small-firm innovation. Scholars also link firm ownership structure (family vs non-
family) to innovation in small firms (De Massis et al. 2013; Breton-Miller and Miller
2009). Furthermore, using a sample of small Turkish firms, Keskin (2006) found that
being oriented toward learning also adds to a firm’s capability to innovate. Overall,
research on innovation in small firms operating in traditional sectors is limited.
Intense competition and fast-paced changes require companies to learn and adapt in
response to external forces (Hillman et al. 2000). This is especially true for small firms,
because they often lack resources to recover from delayed responses (Darnall et al.
2010). That said, small-firm owners and/or managers must bare much of the respon-
sibility in learning to adapt and be responsive. LO has been extensively studied in the
marketing and management literature (DeRue and Wellman 2009; Hult et al. 2004;
Wang 2008). Sinkula et al. (1997) conceptualized LO as a three-dimensional construct
measuring a firm’s value that influences its propensity to generate and utilize knowl-
edge. The three dimensions of LO are commitment to learning, open-mindedness, and
shared vision (Wang 2008). Studies have mostly supported assumptions of positive
influence of LO on firm performance (Bunderson and Sutcliffe 2003; Pett and Wolff
2016; Wang 2008) and firm innovativeness (Hult et al. 2004; Keskin 2006) or inno-
vation (Hurley and Hult 1998; Nasution et al. 2011). However, research on LO has

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focused mostly on large companies with limited attention to small firms (Keskin 2006;
Wang 2008).
Finally, even though owner and/or manager and employee characteristics has
received attention in small-firm innovation literature, our understanding of factors
explaining these actors’ behaviors is limited. For example, we do not understand why
some owners or managers are able to innovate highly in their firms while others fail
to do so. Therefore, it is important to explore factors that motivate small-firm owners
or managers to push their firms to innovate. Our review of the literature, reveals a fac-
tor that we believe may play an important role in small-firm innovation: firm-owner
performance satisfaction. Innovation has been linked to risk-taking actions (Kreiser
and Davis 2010), found to be influenced by past performance (Bromily 1991). How-
ever, research linking a small-firm owner’s performance satisfaction to innovation,
to the best of our knowledge, does not exist. Yet, empirical findings in the literature
suggest that performance satisfaction affects a firm owner’s intentions to continue a
venture (Cooper and Artz 1995), continue their involvement in a family firm (Mahto
et al. 2010), and their assumptions about risky and complacent behavior (Mahto and
Khanin 2015). Since small-firm owner characteristics often influence organizational
behavior and performance (Hmieleski and Ensley 2007), we also explore the impact of
firm-owner gender on firm innovation. The limited literature on a firm owner’s gender
and firm innovation is focused on entrepreneurial firms, but the findings are not consis-
tent. Some of the studies find support for a link between CEO gender and innovation
(Kalleberg and Leicht 1991), but other studies fail to find support for the relationship
(Hisrich and Brush 1984; Wilkens 1987). Some scholars are highly critical of including
gender in scholarly investigation in the first place (Ahl and Marlow 2012), suggesting
that it can serve to reinforce gender stereotypes that may lead to negative outcomes
for women entrepreneurs (Gupta et al. 2009). Those cautions notwithstanding, Gupta
et al. (2009) call for research to give us a more comprehensive understanding of gen-
der as it pertains to small-firm ownership. In the next section, we develop hypotheses
based on these streams of research.

3 Hypotheses

Small firms vary significantly in innovativeness and generating innovation (Hurley

and Hult 1998; Hult et al. 2004). Some small firms are better at generating innovation,
utilizing it to enhance their performance and prolong their existence, while other firms
underperform in those areas. A key factor influencing a small firm’s performance
is the firm owner or manager. It is well known that founders have a long-lasting
impact on their firm (e.g., Cooper and Artz 1995; Mahto and Khanin 2015) thereby
influencing its behavior even after their departure from the firm. In general, small-firm
owners, like the CEOs of large firms, have significant control of and influence on
their firm’s behavior and strategy (Hambrick and Mason 1984). Additionally, small
firms are mostly organized around their owners or managers, which magnifies the
influence these individuals have on the organization. This suggests that a small-firm
owner’s demographics and values should significantly impact firm performance (e.g.,
Hambrick and Mason 1984), including its innovation output. In this study, we argue

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Fig. 1 The proposed model of innovation in small firms

that firm owners directly impact innovation in small firms. Specifically, small-firm
owners’ performance satisfaction and their influence on firm learning orientation will
influence innovation. We also propose that the owner’s gender will moderate those
owner characteristics’ effects on innovation. Our proposed model is illustrated in
Fig. 1 below.

3.1 Learning Orientation (LO) and Small Firm Innovation

To remain competitive, small firms must respond, adapt, and be oriented toward learn-
ing (Currah and Wrigley 2004). LO has received considerable attention in marketing
and management scholarship. The construct measures underlying values toward learn-
ing and skill development in groups and organizations (Keskin 2006; Sinkula et al.
1997; Wang 2008). The construct is operationalized at the group level by assessing the
group’s commitment to learning, open-mindedness, and shared vision among group
members. The construct has also been utilized at an individual level by measuring
only the first two dimensions (Bunderson and Sutcliffe 2003). As learning is linked
to absorption of new knowledge and to processing of complex information emanat-
ing from hypercompetitive environments, empirical findings in the literature on LO’s
impact on organization has consistently been positive (e.g., Hult et al. 2004; Nasution
et al. 2011; Wang 2008).
Innovation is the adoption of new ideas or behavior. The adoption of new ideas
requires groups to remain alert and open to new information or knowledge (Cohen and
Levinthal 1990), continually work toward and prepare to discover creative solutions
to problems (Açıkgöz et al. 2016), and for the organization to encourage these groups
to pursue and benefit from innovative solutions and initiatives (Açıkgöz et al. 2014).
A higher commitment to learning ensures that organizational members are regularly
scanning their environment for new information (Hult et al. 2004), especially critical
in an environment characterized by short product and development life cycles and
intense rivalry. Also, as small firms have a limited number of employees, a conflict or
a disagreement among employees on goals poses an even greater threat of failure to
meet those goals (Giordano et al. 2017). Thus, in a small firm with high LO, chances

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of employees adopting new ideas or behaviors is high as compared to employees in

small firms with low LO. Empirical findings in the extent literature has consistently
supported this relationship. For example, Hurley and Hult (1998) in a survey of a large
research and development agency of the U.S. government found LO has a positive and
significant impact on innovation. Using a sample of UK firms, Wang (2008) reported
positive influence of LO on a firm’s capacity to innovate, which is consistent with
Hult et al.’s (2004) findings. Keskin (2006) found similar results utilizing a sample of
Turkish SMEs with employees numbering between 50 and 250, reporting a positive
impact of LO on firm innovativeness. Thus, considering the consistent findings of
LO’s positive impact on a firm’s innovation in the literature, we propose:

Hypothesis 1 In small firms, learning orientation is positively associated with firm

innovation.

3.2 Performance Satisfaction and Small-Firm Innovation

In the organizational behavior literature, studies have consistently shown that an indi-
vidual’s new performance goals and future performance expectations are influenced
by their past performance (Ilgen 1971; Lane and Gibbons 2007). The literature sug-
gests that when people are satisfied with their past performance, they may elevate their
aspiration leading to more ambitious future goals (Lant and Shapira 2008). However,
people dissatisfied with their performance may experience the opposite effect and may
set their future performance goals lower (Shinkle 2012).
Small-firm owners and managers influence their firm’s behavior through their atti-
tudes, such as their performance satisfaction or dissatisfaction (Hambrick and Mason
1984). The behavioral theory of the firm (Cyert and March 1963) suggests that when
managers are satisfied with the performance of their firms, they are likely to ele-
vate future performance goals without engaging in risky behavior (Mahto and Khanin
2015). Conversely, small-firm owners or managers with high performance dissatis-
faction may engage in more risky behavior in hopes of improving the firm’s future
performance (Cyert and March 1963). Evidence from prospect theory (Kahneman and
Tversky 1979) research also supports the idea that decision makers avoid risk when
they frame a decision as a gain, while they tend to be tolerant of risk when framing the
situation as a loss (Carnevale 2008; Tom et al. 2007). Thus, based on guidance from
major behavioral theories, we propose that a small firm with high owner performance
satisfaction is unlikely to engage in risky behavior. By extension, this suggests that
the probability of a small firm with high owner performance satisfaction engaging in
risky innovation endeavors is low. However, a small-firm owner with high performance
dissatisfaction is more likely to engage in risk-seeking behavior to improve the firm’s
fortunes. This suggests that the probability of small firms headed by a firm owner
experiencing performance dissatisfaction engaging in risky innovation endeavors is
high. Small firms that frequently engage in risky innovation endeavors are likely to
have higher innovation output as compared to small firms that rarely engage in risky
innovation endeavors. Thus, we conjecture:

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Hypothesis 2 In small firms, an owner-manager’s performance satisfaction is nega-

tively associated with firm innovation.

3.3 Influence of CEO Gender

A firm manager has a significant influence on the firm’s behavior, especially in the
case of small firms, where they are often also the owner (Mahto et al. 2010). Ham-
brick and Mason (1984), in their seminal work, supported the link between CEO
demographics and firm performance. A thorough report on the impact of CEO demo-
graphics on a firm’s performance is beyond the scope of this study, but we are are
interested in assessing the impact of a firm owner’s gender on the firm’s innovation.
This interest runs parallel to a significant increase in female entrepreneurship research
and women-owned businesses (Ahl and Marlow 2012; Gupta et al. 2009; Reynolds
et al. 2004). Scholars have reported significant differences between male-owned and
female-owned firms (Brush and Hisrich 1999), including differences in financing and
management style (Verheul and Thurik 2001), and small-firm performance as it relates
to self-funding (Welsh et al. 2017). Thus, it is important to expand this growing field
by assessing whether a small-firm owner’s gender affects the relationships we are
investigating in this study.
Differences between men’s and women’s behavior, management styles, and per-
ceptions have been well documented (Bass et al. 1996; Bass and Avolio 1994; Brush
1992). Small-business research has shown that men are almost twice as likely to start
an entrepreneurial venture as women (De Bruin et al. 2006). Some of these differences
may be because of accessibility hurdles that women face in becoming entrepreneurs.
However, other differences are because men and women have different values and
motivations, including entrepreneurial characteristics such as perseverance, auton-
omy, and attitude toward risk (Sexton and Bowman-Upton 1990). Studies have also
reported that women place lower value on their entrepreneurial characteristics than
men (Van Uxem and Bais 1996), may lack confidence to take risk, and may consider
their industry and technological knowledge to be inferior men’s (Verheul and Thurik
2001). These findings have manifested in women entrepreneurs being more likely to
have businesses that are smaller, experience slower growth, are less profitable, and
operate in lower value service or retail sectors (Carter et al. 2000; Carter and Williams
2003).
The difference in men’s and women’s risk preference may be the reason for reported
differences in innovation among men and women owned firms (Kalleberg and Leicht
1991). For example, Hisrich and Brush (1984) surveyed 468 women entrepreneurs
and failed to find any instances of women entrepreneurs who started a firm based on a
product innovation or modification. Thus, we believe the gender of a small-firm owner
will impact the strength of the relationship between predictors (LO and Performance
Satisfaction) and innovation. Since women have been found to be less willing to take
risks, we believe that when a small-firm owner is female, the relationship between LO
and innovation will be weaker than when the owner is male. This is because women-
owned firms are less likely to engage in risky endeavors such as innovation. However,
considering men’s risk tolerance, we believe that when a small-firm owner is male,

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the relationship between LO and innovation will be stronger than when the owner
is female. Similarly, the difference in risk preference of men and women leads us to
believe that a firm owner’s gender will moderate the relationship between performance
satisfaction and innovation in small firms. More specifically, we believe that when a
small-firm owner is a woman, the relationship between performance satisfaction and
innovation will be weaker than when the owner is a man, and vice versa. Thus, we
propose:
Hypothesis 3a In small firms, a firm owner’s gender will moderate the relationship
between LO and firm innovation, such that the relationship will be weaker for female
owners.

Hypothesis 3b In small firms, a firm owner’s gender will moderate the relationship
between performance satisfaction and firm innovation, such that the relationship will
be weaker for female owners.

4 Method

We used a sample of small firms located in the southwestern part of the United States
to test the proposed study hypotheses. One study author collected the sample through a
survey instrument. The author utilized a database of local businesses available through
the executive arm of a state university’s business school located in the region. The
executive education department maintained the data to market various executive edu-
cation programs and business events. As the department was seeking to develop a new
executive education program for small-business owners in the community, the study
author volunteered to help the department assess the suitability of those programs for
the target audience. The author added additional questions and items in the survey
instrument developed for small business owners in exchange for the help.
The department had a total of 3902 active firms (in the state) in the original database.
The observations in the database contained names of firms, addresses (street, city,
county, state, and zip code), and title and contact information of firm insiders. Budget
constraints associated with the survey limited the author’s ability to sample only 300
contacts from the database using a two-step randomization process. In the first step, the
randomization function available in Microsoft Excel was utilized to assign a random
number to each company in the database. In the second step, the author used the sort
function to rearrange companies in the data from the smallest to the largest (on random
number) to select the first 300 companies in the list. If any firm in the selected list
was a local branch of a large corporation, the author moved to the next firm on the
list after removing the branch location from the selected list. The author continued
the sample refinement process until our final sample of firms to be contacted for the
survey included only local firms.
As the database lacked email addresses, the author personally called the listed
contact person for each firm to extend an invitation to participate in the survey and
reconfirm the firm’s address and the name and contact information for the top executive.
Most of the contacted firms agreed to participate in the survey. The survey question-
naire was mailed to these firms along with a letter explaining the survey instrument

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and the purpose of the survey. A single respondent from each targeted firm completed
the mailed survey. As multiple researchers have raised a concern about the reliabil-
ity of organizational data obtained using a single firm respondent (e.g., Bowman and
Ambrosini 1997), we used only respondents who were either owners of the firm or the
top officers of the firm. Such respondents have been shown to be knowledgeable about
organizational practices and to possess reliable information about the firm, especially
if the firm is small (Zahra and Covin 1995; Mahto et al. 2010). We received completed
surveys from sixty-six firms, representing a response rate of 22%.
The average age of respondents in the study sample was 53.62 years with the
majority of respondents being male (forty-six males and twenty females). The majority
of business owners reported themselves as non-Hispanic white (84%), while six owners
considered themselves Hispanic, one African American, and three chose not to answer
the question. On average, the sample firms had thirty full-time employees and an
average sales revenue of $2.66 million (range includes one responding firm with less
than $550 K per year and five with over $5 million per year). These firms represented
twenty different industries (e.g. food manufacturing to medical, precision, and optical
instruments) with fabricated metal and transportation equipment, aircraft etc. being
the dominant groups with each constituting 12% (eight observations) in the sample.
A large number of respondents (twenty out of sixty-six) left the nature-of-business
question unanswered. In general, small firms in our sample were engaged primarily
in manufacturing.
Some survey respondents’ failure to complete all survey questions (e.g., innovation)
resulted in a smaller usable sample of fifty-three firms for the study. The average firm
age in our sample was 30 years, and most firms had an average of thirty-two employees.
These firms also had average sales revenue of between $1 million and $2 million per
year and an average annual growth rate of about 5%, which was higher than the state
economic growth rate over the same period.

4.1 Study Variables

Learning Orientation (LO)—In this study, we operationalized LO using the scale

developed by Sinkula et al. (1997) and validated by Baker and Sinkula (1999). The LO
scale consisted of eleven items measuring a small firm’s commitment to learning, open-
mindedness, and shared vision. We assessed reliability of the scale using Cronbach’s
Alpha (α  .81), which indicated the scale is reliable. As our sample size was limited,
we created a single measure for the scale by calculating an average for all construct
indicators.
Performance Satisfaction (PS)—We followed Mahto et al. (2010) and Mahto and
Khanin (2015) to operationalize PS as a small-firm owner’s satisfaction with his or
her firm’s revenue, profits, and cash flow levels. The three item scale measured a
firm owner’s satisfaction on three components of financial performance using a 5-
item Likert scale, where 1  Strongly disagree to 5  Strongly agree. A Cronbach’s
Alpha (α  .94) indicated high reliability for the scale. Again, because of sample size
constraints, we created a single measure for the scale by computing an average for all
construct indicators.

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Innovation—We operationalized innovation using a two-item scale that measured a

small firm’s investment in new products and new process development as a percent of
their revenue. The two-item scale is similar to Nasuation et al.’s (2011) operationaliza-
tion of process innovation. A Cronbach’s Alpha (α  .81) indicated a high reliability
for the scale. Like previous variables, we created a single measure for the scale by
computing an average for all construct indicators.
CEO Gender—We measured gender using categorical male and female options.
We coded the variable as 1  male and 2  female.
Control Variable—As larger organizations have more resources, their capacity to
innovate may be higher (Hult et al. 2004). Thus, we controlled for the firm size in our
study by including number of fulltime employees as a proxy for size.

4.2 Analysis

Hypotheses were testing by examining the following regression equation:

Y  b0 + b1 C + b2 X − b3 Z + b4 G + b5 Gmc Xmc − b6 Gmc Zmc

where Y  Innovation, C  Number of fulltime employees, X  LO, Z  Performance

Satisfaction, G  CEO Gender, Gmc  Mean-centered Gender, Xmc  Mean-centered
LO, and Zmc  Mean-centered Performance Satisfaction. A significant b2 will suggest
support for H1, where a significant b3 will support H2. Hypotheses H3a and H3b
will receive support if b5 and b6 are significant, respectively. We assessed the above
equation in a four-step hierarchical multiple regression analysis.

5 Results

We report descriptive statistics and correlation coefficients for all study variables in
Table 1. In Table 2, we report results of the regression analysis. As can be observed
in Table 1, innovation is positively associated only with LO. Some interrelation exists
among independent variables. For example, LO is positively associated with CEO
gender, suggesting that small firms with female CEOs have higher LO.

Table 1 Means, standard

Variables 1 2 3 4 5
deviations, and correlations
Firm size 1
Innovation − .02 1
LO .19† .41*** 1
PS .23* .07 .14 1
Owner − .10 .14 .35** .00 1
gender
N  53 Means 32.13 1.77 3.91 2.37 1.32
* p < .05, ** p < .01, *** p
< .001, † p < .10 SD 13.99 .78 .49 1.11 .47

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Table 2 Regression results for innovation

Independent variables Model 1 Model 2 Model 3 Model 4

Constant 1.78*** − .90 − .91 − .70

Firm size .00 .00 .00 .00
LO .68** .69** .66**
PS .02 .02 .31
Owner gender − .02 − .14
LO × gender .84†
PS × gender − .18
Model R2 00 .18*** .18** .24**
R2 .18*** .00 .06*
Adjusted R2 − .02 .13 .11 .14
N  53. All values are unstandardized beta coefficients
*p < .05, **p < .01, ***p < .001, †p < .10

Results of the regression analysis in Table 2 suggest that hypothesis 1 is supported:

LO has a positive and significant (β  .66, p < .01) influence on innovation in small
firms. However, hypothesis 2 is not supported as PS failed to reach a significance level
(β  .31, p > .10) in the model. Hypothesis 3a and 3b are not supported as interaction
terms in the model are either not significant or relationship signs are inconsistent with
our prediction. For example, the interaction term between LO and a firm owner’s
gender is partially significant (β  .84, p < .10), but contrary to the hypothesized (3a)
relationship, the coefficient has a positive influence on innovation. This suggests that
the strength of the relationship between LO and innovation becomes stronger when
the firm owner is female.

6 Discussion

Study findings suggest that LO has a positive influence on innovation in small firms.
This finding is consistent with findings reported in management and marketing lit-
eratures (Hurley and Hult 1998; Hult et al. 2004). Our study makes an important
contribution to the literature by extending the literature into small business research.
A review of the literature revealed that most studies on LO and innovation were con-
ducted on either large firms or technology-based companies. Thus, the link between LO
and innovation has remained unexplored in the context of small or micro firms oper-
ating in non-technology sectors (Wang 2008). Study findings expand our knowledge
into the small-firm environment, giving a more complete understanding of small-firm
innovation, and provide small-firm owners with another tool to enhance innovation.
Contrary to our expectations, our study failed to find support for the proposed
relationship between a firm owner’s performance satisfaction and innovation. Perfor-
mance satisfaction construct has not received adequate attention in the small business
literature (Mahto and Khanin 2015). However, our study findings indicate that either a
small-business owner unsatisfied with firm performance does not become risk-seeking,

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or the construct requires more empirical investigation to understand its dynamics in

a small-business context. We are leaning toward the latter and ask scholars to further
research the construct in a small-business context.
A surprising finding of our study is the impact of a firm owner’s gender on innova-
tion. Even though a firm owner’s gender was not related to innovation in small firms,
it emerged as a moderator of the relationship between LO and innovation. The non-
significant impact of a firm owner’s gender to a small firm’s innovation might indicate
that gender may be edging toward insignificance (Buttner and Rosen 1992) or that
female firm owners might have characteristics similar to those of male firm owners
(Ahl and Marlow 2012; Batchelor 2015; Gupta et al. 2009). This finding is consistent
with Kalleberg and Leicht’s (1991) finding about innovation in firms headed by men
and women. However, another surprising finding that emerged from our study was
that the relationship between LO and innovation was stronger when a firm owner was
a woman. We speculate that it might be because female firm owners are more likely to
operate the firm with a caring attitude that fosters a climate of consensus and tolerance
for mistakes (Kalleberg and Leicht 1991). Our findings also suggest that a small firm
headed by an owner with masculine characteristics is less likely to realize the strong
beneficial effects of LO on firm innovation.
Overall, our findings confirm that LO is important for small firms seeking to obtain
competitive advantage through innovation. Our findings complement limited studies
on innovation in small and micro firms in traditional sectors of the economy. For
example, Kalleberg and Leicht’s (1991) study of innovation in small firms was based
on data from only three industries, while our study includes data from twenty different
industries. Similarly, while Keskin’s (2006) study on LO and innovation in small firms
was based on a sample of Turkish firms, our study is based on a sample of U.S. firms. In
addition, they utilized a modified four-item LO construct, while we used the original
scale for our study, which further adds to understanding of the full sense of learning
orientation. Finally, our study responded to multiple calls for more research on the
performance satisfaction construct (Mahto and Khanin 2015), LO (Keskin 2006; Wang
2008), and innovation (Terziovski 2010) in a small-business context, which helped us
make significant contributions to these streams of research.

7 Limitations and Future Research Directions

Even though our study has some significant findings on innovation for small firms, we
caution readers about generalizability and applicability of the study findings. This is
because of some sample and methodological limitations of our study. The data used
for assessing the model was obtained from firms operating in the southwestern part
of the United States. Thus, the applicability of study findings in geographical areas
outside of the sampled firms’ region might be limited.
Additionally, the sample used for the study was obtained from a single firm respon-
dent. The use of a single respondent for self-reported data introduces the potential
of common method variance (Podsakoff et al. 2003). We followed the guidance of
Podsakoff et al. (2003) to reduce the possibility of common method variance in our
data during the data collection stage by assuring the respondents of confidentiality

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and anonymity to reduce evaluation apprehension. We also assessed the presence

of common method variance in our sample by conducting Harman’s one-factor test
(Podsakoff and Organ 1986). The results of the analysis suggested that no single factor
accounted for the majority of variance in these variables. This ruled out the possibility
of common method variance in our sample. Finally, we utilized a cross-sectional sam-
ple to assess our model, which limits possibility of causality among study variables.
Future research should utilize longitudinal studies to explore more robust relationships
among these variables. We also encourage scholars to replicate our study in a larger
sample of small firms to assess our model’s validity.
In addition to methodological areas for future research, there are areas for further
consideration in examining the difference between owners and managers concerning
learning orientation and performance. Stanley and McDowell (2014) found a signifi-
cant difference between owners and managers concerning trust and efficacy, thus the
surprising results when looking at gender may also apply to the owner-manager dif-
ference as well. Also, while we focused on learning orientation for this specific study
as it relates to the owners or managers of these firms, potential future research may
focus on the learning organization (Senge 2006) and expand into the additional areas
of systems-thinking, personal mastery, and mental models. The opportunity for further
development in this area may lead to additional important developments.
Another area of importance in small-firm research is the interorganizational rela-
tionships that these small firms rely on in areas such as suppliers, buyers, and other
stakeholders. Trust, negotiations, communication, and other issues are of paramount
importance for these firms in their relationships (Stanley and McDowell 2014). Future
research may examine LO in the relationship between firms as they work together
toward common goals. Our research has examined the relationship between LO and
innovation, and we expect that LO will also positively relate to collaborative success
with other firms.

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