Does Perceptual Acuity Matter? — An Investigation Of Entrepreneurial Orientation, Perceptual Acuity, And Firm Performance

One critical proposition in normative strategic management research is that an accurate perception of the environment by top managers is a prerequisite to attaining better organizational performance. However, recent entrepreneurship studies suggest that entrepreneurs are often leading or even causing environmental changes, and thus they may perceive greater industrial instability than there actually is. In this project, we examine if an over-perception of industrial instability exists among entrepreneurs. If it does, which perceptual mode (accurate perception versus over-perception) will benefit firm performance? We conducted the study in a highly volatile environment — China — and found that entrepreneurial orientation (EO) had an inverse U-shape relationship with perceptual acuity of industrial instability, indicating that a greater level of EO indeed led to an over-perception of industrial instability. However, we found that although perceptual acuity of industrial instability improved firm sales, it was negatively associated with organizational effectiveness evaluated by top managers. Additional analyses were conducted and implications were provided in the end.