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Article

Digital Entrepreneurial Orientation, Technology Absorptive Capacity, and Digital Innovation on Business Performance

by
Sung Hee Jang
1 and
Chang Won Lee
2,*
1
Research Institute of Creative & Cultural Industries, Kyungpook National University, Daegu 41566, Republic of Korea
2
School of Business, Hanyang University, Seoul 04763, Republic of Korea
*
Author to whom correspondence should be addressed.
Systems 2025, 13(4), 300; https://doi.org/10.3390/systems13040300
Submission received: 4 February 2025 / Revised: 31 March 2025 / Accepted: 16 April 2025 / Published: 19 April 2025
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Abstract

:
The purpose of this study was to investigate the factors affecting digital entrepreneurial orientation, technology absorptive capacity, and digital innovation in business performance. To achieve the purpose of research, digital entrepreneurial orientation, technology absorptive capacity, digital innovation, and business performance (financial and technological performance) were chosen as research variables to explore the relationship effects and medicating effects. Industry type variable was selected to examine moderating effect. Industry type, employees’ numbers, and sales volumes were used as control variables to identify compounding effects of variables. A survey questionnaire was developed, and the proposed model was analyzed to target 122 small and medium venture enterprises (SMEs) in Republic of Korea. Smart PLS 4.0 and SPSS 27.0 were utilized to derive the study results as follows. First, digital entrepreneurial orientation and technology absorptive capacity have a positive influence on digital innovation. Second, digital entrepreneurial orientation has a positive impact on technology absorptive capacity. Finally, digital innovation has a positive effect on financial and technological business performance. The results of this study provide strategic implications for digital innovation and business performance for firms pursuing digital transformation. Therefore, firm managers should prioritize digital entrepreneurial orientation and technology absorptive capacity to improve business performance.

1. Introduction

Digital transformation, which has seen an exponential expansion in recent years, promotes the digitization of traditional industries by applying digital technologies such as artificial intelligence (AI), big data analytics, cloud computing, and the Internet of Things (IoT). In the era of digital transformation, companies must utilize digital technology and digital strategies to maintain and grow their existing business models. To use technologies, they require new, digital entrepreneurship, which refers to innovative thinking and actions to find and capture new opportunities to create value of digital technology. The aim of such technology is to discover and realize new business opportunities through innovation based on the understanding and application capabilities of digital technology [1,2]. Digital transformation plays an important role in innovation, economic growth, and job creation [3].
Despite the increasing significance of digital entrepreneurship, research on it is in its infancy [4]. Previous studies comprise literature reviews [3,5], a case study [6], analysis of Global Entrepreneurship Monitor (GEM) data [7], and bibliographic analysis of digital entrepreneurship research [8,9,10]. The literature of empirical analyses reveals the impact of entrepreneurial orientation on digitalization strategies and disruptive innovation [11], adoption of digital technologies for sustainability, value creation, and performance of SMEs [12], individual entrepreneurial orientation and relational capital for digital strategy implementation [13], entrepreneurial orientation, absorptive capability for SMEs performance in an emerging economy [14], technology, entrepreneurial orientation, digital technology self-efficacy, and digital innovation on women empowerment [15], entrepreneurial orientation, digital orientation, and strategic agility on the competitive advantage [16], digital capabilities, entrepreneurial orientation on metaverse entrepreneurial performance, and digital transformation spreads. No studies have been published on the impact of digital entrepreneurial orientation, technology absorptive capability, or digital innovation on performance.
By addressing this research gap, the current study makes some contribution to the strategic management literature. First, it clarifies the interplay between digital entrepreneurial orientation, technology absorptive capacity, digital innovation, and business performance in SMEs context, an undergoing digital transformation. While prior studies have examined aspects of these relationships independently, to the best of our knowledge, this is the first study to analyze these elements simultaneously, specifically digital entrepreneurial orientation, digital innovation, performance. In addition, this study investigates a gap left by prior researchers by linking digital entrepreneurial orientation to SMEs’ performance while accounting for the mediating effects of technology absorptive capacity and digital innovation.
This study (1) investigated relationships among identified digital entrepreneurial orientation and technology absorptive capability; (2) examined digital entrepreneurial orientation and technology absorptive capability on digital innovation; and (3) analyzed the impact of digital innovation and business performance (financial and technological performance). Therefore, the purpose of this study was to empirically examine digital entrepreneurial orientation, technology absorptive capacity, and digital innovation on business performance. To achieve the research objective, an empirical analysis was conducted on 122 firms in Republic of Korea. Smart Partial Least Square (PLS) 4.0 was utilized to derive the study results, which emphasize the need for digital entrepreneurial orientation in the era of the Fourth Industrial Revolution and digital transformation. In addition, strategic implications were reported for companies seeking digital innovation and performance through digital entrepreneurial orientation and technology absorptive capability.

2. Literature Review and Research Hypotheses

The digital transformation of businesses across various industries is rapidly becoming a key trend, driven by advanced technologies like IoT, big data analytics, AI-powered applications, blockchain, and cloud computing. To stay competitive, companies must effectively adopt digital technologies to drive significant improvements, such as improving customer experiences, optimizing operations, and developing innovative business models. Failing to do so may result in being outpaced by competitors who successfully embrace these changes [17].
These technologies are playing an increasingly crucial role in supporting the creation of new ventures. Digitalization is arguably the most significant driver of entrepreneurship and innovation today [18]. Digital technologies are increasingly vital to contemporary entrepreneurship, leading to a growing demand for research as the significance of digital entrepreneurship is acknowledged. Researchers such as Berger et al. [18], Kraus et al. [4], and von Briel et al. [5] have highlighted the importance of studying various aspects of digital entrepreneurship, particularly the skills, traits, and behaviors that play a key role in entrepreneurial success.

2.1. Digital Entrepreneurial Orientation

Entrepreneurship, mainly studied as an individual-level behavior, is a series of processes in which entrepreneurs seize new business opportunities and pursue entrepreneurial values. Entrepreneurial orientation (EO) has emerged as a widely accepted framework for fostering firm innovation and performance [19,20,21], is identified as “the simultaneous exhibition of innovativeness, proactiveness, and risk taking” [22,23], and represents the firm’s priority to the identification and exploitation of novel market opportunities [19,24]. Entrepreneurial orientation is conceptualized as the shared variance among risk-taking, innovativeness, and proactiveness and is a sustained organizational-level construct [25].
The first dimension, innovativeness, is represented in a firm’s inclination to advocate new ideas, creative processes, and new products and services [20,26]. Next, proactiveness results from opportunity-seeking in competitive future markets [20]. By implementing proactive action or decision-making, a firm can respond swiftly to market demand [27]. Finally, risk-taking is related to the tendency to devote considerable resources to uncertain projects [19,24]. Lumpkin and Dess [20] were the first to propose the concept of entrepreneurial orientation at the organizational level by adding autonomy and competitive aggressiveness to the concept proposed by Miller [22]. They defined entrepreneurial orientation to include the tendency of a firm to act in innovative, risk-taking, progressive, autonomous, aggressive, and competitive ways when faced with market opportunities, as well as management methods, practices, and decision-making styles [20].
Digital entrepreneurship is defined as a sub-concept of entrepreneurship involving the digitalization of the physical aspects of traditional organizations [3]. Digital entrepreneurship is the process of creating additional value using digital technology to create businesses and harmonize them with new methods and traditional entrepreneurship [28]. In previous studies on digital entrepreneurship orientation, Yoon [29] defined digital entrepreneurship as the tendency of an organization to pursue new business opportunities and value creation with entrepreneurial and digital orientation. That study analyzed the effects of digital entrepreneurship and dynamic capabilities on on-demand service innovation. Kraus et al. [11] analyzed digital entrepreneurial orientation in digitalization strategy and disruptive innovation. They emphasized that entrepreneurs’ innovativeness, proactiveness and risk-taking were necessary for disruptive innovation. In their study, digital entrepreneurship orientation is the use of digital technology to capture new business opportunities and pursue value creation through innovation.
Kittikunchotiwut [30] reported a significant influence of entrepreneurial orientation on innovation, and Kraus et al. [11] found that entrepreneurial orientation had a positive influence on disruptive innovation [31]. Digital entrepreneurial orientation was shown to have a positive effect on digital transformation and innovation [29]. Based on such results, the present study hypothesizes that digital entrepreneurial orientation would have a significant effect on digital innovation.
H1: 
Digital entrepreneurial orientation (DEO) is positively associated with digital innovation (DI).

2.2. Technology Absorptive Capacity

Absorptive capacity represents an organizational process using existing and related knowledge to recognize the value, assimilation, and transformation of new information into learning artefacts maintained in organizational memory commercial ends [32,33]. Zahra and George [33] divided absorptive capacity into potential absorptive capacity and realized absorptive capacity and showed that new external information is transformed into differentiated corporate capabilities through knowledge acquisition, assimilation, transformation, and exploitation.
The concept of absorptive capacity has proven flexible enough to be used not only for various dimensions (e.g., individual, organizational, interorganizational) but also in many fields of research (e.g., industrial organization, strategic management, technology management). The types of knowledge that permit the study of absorptive capacity include those linked to expertise in technological, distribution, and purchasing; product and process designs; management systems; and cultural absorptive capacity [34]. If the firm finds itself in an environment of high technological change, the incentives increase for absorbing this external knowledge and taking advantage of the technological opportunities. Every firm must search outside its boundaries and acquire external technological knowledge. Given its importance, innovation of the technological base is a source of competitive advantage.
Technology absorptive capacity has been demonstrated to influence innovation through technology and innovation-related activities in technological firms. Lin et al. [35] mentioned that technology absorptive capacity is an important component of successful innovation. García-Morales et al. [34] suggested that technology absorptive capacity has a positive impact on organizational innovation in technological firms. Min et al. [36] stated that technological absorptive capacity has a major impact on product, organizational, and technological innovation. Thus, the hypothesis is developed to identify the effects of technology absorptive capacity on digital innovation.
H2: 
Technology absorptive capacity (TAC) is positively associated with digital innovation.

2.3. Digital Entrepreneurial Orientation and Technology Absorptive Capacity

Lumpkin and Dess [20] argued that entrepreneurial-oriented firms are much more likely to succeed than non-entrepreneurial-oriented firms because the former continue to pursue market opportunities. Absorptive capacity is a key capability through which entrepreneurial-oriented firms acquire new information and knowledge about market opportunities through multiple channels. The new information acquired is a key focus of absorptive capacity, which generates new information. Firms with high entrepreneurial orientation are likely to produce continual new opportunities due to their potential capabilities, through which additional opportunities for absorptive capacity are based on various prior knowledge [37].
The better understood and handled are the changes obtained entrepreneurial orientation, the greater is the knowledge acquisition of the firm through its absorptive capacity. This can benefit innovation [38] and firm performance [39] by assisting the interpretation required when the firm seeks entrepreneurial orientation [23]. A high level of entrepreneurial orientation can enhance a firm’s absorptive capacity for new knowledge from partners and transform it into new innovations. Makhloufi et al. [40] suggested that entrepreneurial orientation is a crucial facet that positively influences the absorptive and innovative capabilities. Sungthong et al. [41] revealed that entrepreneurial orientation has positive impacts on absorptive capacity, technological innovation capability, and innovation and financial performance. Recent empirical findings by Alshahrani and Salam [14] indicate that absorptive capacity strengthens the technological innovation effect of entrepreneurial orientation in SMEs. Based on previous research, a hypothesis was developed to identify the direction of effects of digital entrepreneurial orientation on technology absorptive capacity.
H3: 
Digital entrepreneurial orientation is positively associated with technology absorptive capacity.

2.4. Digital Innovation and Business Performance

Innovation is required for firms to secure superior positions and develop. They must successfully embrace transformation through digital technology to enable major business improvements by enhancing customer experience and engagement, streamlining operations and creating new business models [42]. Organizational innovation refers to the creation or adoption of new ideas or behaviors by an organization. Business firms that manage resistance to change well can better promote the creation and implementation of innovative ideas and actively interact with the environment [43]. Innovation is an important means of securing a competitive advantage, and firms seeking innovation act by predicting market demand using digital technology and digital methods. In this respect, organizational innovation can enhance a firm’s competitive advantage, increase performance, and quickly capture new business opportunities.
Firm performance is a measure of how well a firm meets its goals and objectives compared with its primary competitors [44]. It is a comprehensive indicator focusing on social growth and profitability. Business performance includes a balance of outcomes, usually related to business processes, with initially defined goals [45]. Previous studies examine financial and technological performances incorporated into business performances and entrepreneurial orientation. According to Alshahrani and Salam [14], entrepreneurial orientation and absorptive capacity can be harnessed to enhance financial performance. Absorptive capacity effectively leads to the creation of new processes and products, and it increases the likelihood of innovation to effectively reduce or manage uncertainties and risks associated with entrepreneurial behaviors, which, in return, enhance firm performance. Kostopoulos et al. [46] found that absorptive capacity had a positive effect on financial performance through innovation performance. On the other hand, technological performance can be evaluated comprehensively through the competitiveness of a firm’s digital technology, innovation in digital technology, and efficiency of technology utilization. Park et al. [47] studied R&D considering the financial and technical performances of SMEs.
In previous studies on digital innovation, digital orientation and absorptive capacity enhanced innovation to increase organizational performance in firms. In a study by Nwankpa and Roumani [48], digital transformation had a positive effect on corporate performance through IT capabilities and innovation. Khin and Ho [17] found that digital orientation and digital capability had a positive effect on financial and non-financial performances through digital innovation. Kastelli et al. [49] argued that digital capacity and absorptive capacity have a significant impact on innovation performance. Management and technological innovations have been shown to improve organizational performance [50]. Therefore, the following hypotheses aim to identify the effects of digital innovation on business performance.
H4: 
Digital innovation is positively associated with business performance.
H4a: 
Digital innovation is positively associated with financial performance (FP).
H4b: 
Digital innovation is positively associated with technological performance (TP).

2.5. Mediating Effects

Most structural models are subject to mediating effects, a factor often overlooked by researchers in PLS-SEM analyses. Such models can fail to examine or interpret the full mediation results, merely concluding nonsignificant relationship between two latent variables [51]. This can lead to the incorrect conclusion that there is no relationship between two variables in a structural model. Researchers should consistently report the total effects as the sum of direct and indirect effects of two constructs. The results present a clearer understanding of the role of mediating constructs and provide practitioners with valuable insights regarding cause–effect relationships.
Moreover, formalized mediation analysis by means of bootstrapping analysis [51] is especially valuable when corresponding hypotheses have been formulated [52]. When using variance-based structural equation modeling techniques such as PLS-SEM, researchers must strive for a reliable measurement of the mediator variable to avoid inaccurate conclusions [53].
Technology absorptive capacity and innovation have been verified as mediating effects in several previous studies. Absorptive capacity positively mediates the relationship between entrepreneurial orientation and firm performance in SMEs [14]. Makhloufi et al. [40] validates that absorptive capacity functions as a mediator between entrepreneurial orientation and innovation capability. Aljanabi [21] finds that absorptive capacity mediates the relationship between entrepreneurial orientation and technological innovation capabilities. Therefore, the following hypotheses aim to identify the mediating effects among the constructs of digital entrepreneurial orientation, technology absorptive capacity, and digital innovation on business performance.
H5: 
Technology absorptive capacity mediates the relationship between digital entrepreneurial orientation and digital innovation.
H6: 
Digital innovation mediates the relationship between digital entrepreneurial orientation and business performance.
H6a: 
Digital innovation mediates the relationship between digital entrepreneurial orientation and financial performance.
H6b: 
Digital innovation mediates the relationship between digital entrepreneurial orientation and technological performance.
H7: 
Digital innovation mediates the relationship between technology absorptive capacity and business performance.
H7a: 
Digital innovation mediates the relationship between technology absorptive capacity and financial performance.
H7b: 
Digital innovation mediates the relationship between technology absorptive capacity and technological performance.
H8: 
Technology absorptive capacity and digital innovation mediate the relationship between digital entrepreneurial orientation and business performance.
H8a: 
Technology absorptive capacity and digital innovation mediate the relationship between digital entrepreneurial orientation and financial performance.
H8b: 
Technology absorptive capacity and digital innovation mediate the relationship between digital entrepreneurial orientation and technological performance.

2.6. Moderating Effects

This study draws on the research paradigm of relevant studies [54,55,56,57] to further examine the moderating effect of industry type (IT industry and non-IT industry) on the relationships between DEO, TAC, DI, FP, and TP. According to Daradkeh [54], industry type has a moderating effect on knowledge orientation and business analytics capabilities, as well as on business analytics capabilities and business model innovation. The industrial types were classified into high-tech and non-high-tech industries. Chen and Hiele [55] showed moderating effects that industry type had on the relationships between the IT-coordination costs and firm size using the transaction cost economics perspective. Verma et al. [56] found that industry type moderated the relationship between organizational learning and organizational innovation. Duke et al. [57] analyzed that industry type moderated the relationship between ability, motivation and firm performance. Therefore, the following hypotheses aim to identify the moderating effects among the constructs of digital entrepreneurial orientation, technology absorptive capacity, and digital innovation on business performance.
H9a: 
Industry type moderates the relationship between digital entrepreneurial orientation and technology absorptive capacity.
H9b: 
Industry type moderates the relationship between digital entrepreneurial orientation and digital innovation.
H9c: 
Industry type moderates the relationship between technology absorptive capacity and digital innovation.
H9d: 
Industry type moderates the relationship between digital innovation financial performance.
H9e: 
Industry type moderates the relationship between digital innovation and technological performance.

3. Research Model

Figure 1 shows the research model design of a strategic rationale for the effects of digital entrepreneurial orientation, technology absorptive capacity, and innovation on performance.
This study investigates the relationships among the small and medium venture enterprises (SMEs) in Republic of Korea, with digital entrepreneurial orientation as an independent variable, business performance as a dependent variable, and technology absorptive capacity and digital innovation as mediating variables. In addition, the study includes three control variables that may influence financial and technological performance of SMEs including industry type, employees’ number, and sales volume. This study provides insights for firms to mapping digital entrepreneurial orientation and technology absorptive capacity for a competitive advantage.

4. Research Method

4.1. Sample and Procedures

According to the 2024 Global Entrepreneurship Monitor (GEM) survey, Korea’s entrepreneurship index ranked 6th out of 56 countries. It is on the rise, following 15th place in 2019, 9th place in 2022, and 8th place in 2023. Korea’s economic growth is based on entrepreneurship. In 1960, per capita GDP was only $100, but today it is $34,000. It is meaningful to study entrepreneurship, which has been a major driving force behind Korea’s economic growth. Also, the number of small and medium-sized enterprises announced in 2023 is approximately 7.71 million, accounting for 99.9% of all enterprises, and the number of employees in small and medium-sized enterprises is 18.49 million, accounting for 80.9% of all employees. In today’s digital economy, Korea’s business fever has continued because of entrepreneurship. In this respect, it would be meaningful to conduct research based on Korean data because economic growth can be achieved through the continued spread of entrepreneurship.
This study was designed to identify the relationship between digital entrepreneurship orientation, technology absorption capacity, and digital innovation based on the previous studies presented above, and to investigate the impact of digital innovation on management performance. A questionnaire was distributed to adults aged 20 or older who had knowledge related to this work, and the response method was self-reported. In order to conduct the survey, the purpose and terms of this study were briefly explained to increase the response rate and reliability.
An online survey was conducted using a list of venture companies of the Ministry of SMEs and Startups searched on the public data portal (as of 30 November 2022) in Republic of Korea. Among these companies in the list, questionnaires were sent by mail to 500 with webpages, including business in manufacturing, wholesale and retail, and information processing. In addition, a survey was conducted using Google Form. The survey period was from 10 July 2023, to 30 October 2023, and results of 122 firms were used for analysis of the number of respondents, reliability and validity analyses, and hypotheses of the structural model using the Smart PLS (partial least squares) 4.0 and SPSS 27.0 statistical packages. PLS is able to provide standard results assessment criteria and goodness of model fit along with more user-friendly modeling and robust outputs than other similar software of SEM. Also, PLS works very well if the study includes many constructs and complicated model relationships.
To justify sampling size, a study of a small sample size with a single region may be sufficient if a sample size is 97 or more measurements/surveys are needed to have a confidence level of 95% that the real value is within ±10% of the measured/surveyed value. Common Method Bias (CMB) and non-response bias (NRB) are problems in empirical research and should be careful about at the research design stage. To minimize the CMB, a preliminary survey was conducted to clearly define the concepts of the research variables. In addition, NRB issue was resolved by excluding missing values in the hypothesis verification stage. Through these sampling procedures, the sampling adequacy for this study was justified for further analysis.
Table 1 shows demographic characteristics of respondents. The sample consisted of 99 males (81.1%) and 23 females (18.9%). The age group with the largest proportion of respondents was from 40 to 49 years old with 60 respondents (49.2%), followed by those 50 years or older with 31 (25.4%) and from 30 to 39 years with 20 (16.4%). More than half (65.5%) of respondents had at least 10 years of work experience, 18.1% (22) had 3 to10 years of experience, and 16.4% (20) had worked at the firm for less than 3 years.
For types of industry, IT industry consisted of 59 (48.4%) respondents, and 63 (51.6%) respondents were included in non-IT industry (manufacturing, service, finance and insurance, distribution and logistics, and others). As in the number with employees, 62 firms took 50.8% with fewer than 500, with 49.2% of 60 firms with 500 or more. The firms’ sales were made up of 58 respondents (47.5%) with less than 50 billion won, and 60 respondents (52.5%) with 50 billion won or more. The degree of digital technology adoption by firms are as follows: 86 respondents (70.5%), the largest group, adopted cloud computing, followed by big data with 70 respondents (58.2%), artificial intelligence with 58 (47.5%), the Internet of Things (IoT) with 35 (28.7%), and blockchain with 31 (25.4%).

4.2. Measures

The measurement items for each construct were adapted from previous studies but were modified to encompass digital entrepreneurial orientation and technology absorptive capacity. The model had five constructs, each with multiple items measured using a seven-point Likert scale (1 = strongly disagree and 7 = strongly agree). The operational definitions of the variables in this study are as follows. Digital entrepreneurial orientation is defined as new business opportunities and realization of innovation using digital reality and technology through innovative and business capabilities. The measurement items were developed using studies by Kraus et al. [11] and Khin and Ho [17]. Technology absorptive capacity is defined as the degree of ability for a firm to acquire and utilize digital technology and apply it to internal business operations. The measurement items for technology absorptive capacity were developed using studies by Hughes et al. [58] and Xue et al. [59]. Digital innovation is defined as the degree to which products and services have an advantage over competitors due to digital technology. The measurement items were developed using studies by Khin and Ho [17], Zhen et al. [60], and Jang and Lee [61]. Financial performance is defined as the degree to which a firm’s financial performance has increased over the past three years since the adoption of digital technology. The measurement items were developed using studies by Alshahrani and Salam [14] and Zhang et al. [50]. Technological performance is defined as the degree to which a firm’s technological performance has increased over the past three years since the adoption of digital technology. The measurement items were developed using studies by Park et al. [47] and Hervas-Oliver et al. [62]. Table 2 shows a summary of measurement items of the constructs.

5. Data Analysis and Results

5.1. Reliability and Validity Analyses

In this study, reliability and validity analyses of the measurement items were conducted. First, the reliability of individual measurement variables is assessed [63]. Second, the internal consistency reliability was assessed by Cronbach’s alpha and composite reliability (CR) (rho_a) (rho_c) values. Last, the convergent validity was assessed by average variance extracted (AVE), and discriminant validity was assessed using the Fornell–Larker criterion, cross-loadings, and heterotrait–monotrait ratio (HTMT). As a result of the reliability analysis, the CR (rho_a) and CR (rho_c) values was 0.9 or higher and the Cronbach’s α value was 0.8 or higher, indicating secure reliability.
To evaluate validity, convergent validity and discriminant validity were analyzed. Convergent validity was evaluated by the AVE value, and if the AVE value is 0.5 or higher, convergent validity is desirable. Discriminant validity was assessed to have convergent validity when the square root of the AVE value for each construct is 0.7 or higher and is greater than any correlation coefficient between two constructs. The factor loading of all measurement items was 0.8 or higher, and the validity of the variables of this study was secured. If all values of HTMT are less than 0.9, they were assessed to have discriminant validity. As the results of this study met all these criteria, the convergent validity and discriminant validity could be secured. The results of the reliability and validity analyses are shown in Table 3, the results of the discriminant validity are shown in Table 4, and the structure path estimates are shown in Table 5.

5.2. Structural Model Analysis

To test the proposed research model, Smart PLS 4.0 with bootstrapping was used for both the measurement model and the structural model. Figure 2 shows the results of the structural equation with the R2 values. The R2 value of an endogenous variable (or predictors or independent variable) is ‘good’ if R2 is 0.26 or higher. Digital entrepreneurial orientation and technology absorptive capacity explained 73.4% of the variance in digital innovation. Digital entrepreneurial orientation explained 68.0% of the variance in technology absorptive capacity. In addition, digital innovation explained 44.3% and 47.1% of the variance in financial and technological performance respectively.
The results of the hypothesis test are as follows. First, digital entrepreneurial orientation had a positive (+) effect on digital innovation, and hypothesis 1 (path coefficient = 0.300, t = 2.868 **) was adopted. This finding is consistent with several previous studies showing that entrepreneurial orientation improves digital innovation [11,30,31,40]. Makhloufi et al. [40] showed that the capability for innovation activities was highly reliant on entrepreneurial orientation. Kitikunchotiwut [30] found that entrepreneurial orientation had a positive effect on organizational innovation research for leadership. Additionally, Kraus et al. [11] stated that entrepreneurial orientation enhanced disruptive innovation, and Upadhyay et al. [31] suggested that entrepreneurial orientation increased business innovation.
Technology absorptive capacity had a positive (+) effect on digital innovation, and hypothesis 2 (path coefficient = 0.593, t = 5.916 ***) was adopted. This finding is consistent with the results of several previous studies showing that absorptive capacity has a positive effect on digital innovation [34,36]. García-Morales et al. [29] argued that technology absorptive capacity in technological firms enhanced organizational innovation. Makhloufi et al. [40] revealed a significant relationship between absorptive capacity and innovation capability. Min et al. [36] found that absorptive capacity significantly affected organizational innovation, product innovation, and technological innovation.
In addition, digital entrepreneurial orientation had a positive (+) effect on technology absorptive capacity. Hypothesis 3 (path coefficient = 0.825, t = 19.947 ***) was adopted in agreement with several studies including Sungthong et al. [41] and Alshabrani and Salam [14]. Alshabrani and Salam [14] found that entrepreneurial orientation enhances absorptive capacity, influencing firm performance. Khan et al. [64] described a positive relationship between entrepreneurial orientation and absorptive capacity on the success of IT projects. They argued that firms should balance all factors of entrepreneurial orientation and strive to improve the absorptive capacity in their firms to achieve project success. Thus, managers should encourage their employees to be entrepreneurial and proactive to utilize new digital technologies and knowledge by increasing the firm’s technology absorptive capacity.
Finally, Hypothesis 4a and Hypothesis 4b that digital innovation improves business performance were adopted. Such innovation improved not only the financial performance of a firm but also its technological performance, consistent with the results of several previous studies noting that innovation improves performance. García-Morales et al. [34] found that organizational innovation had a positive effect on organizational performance. In previous studies on digital orientation and absorptive capacity, digital innovation enhanced financial and technical performances [48,49,50].
As any change of a control variable would invalidate the correlation of dependent variables to the independent variables, controlling variables composed of types of industry, number of employees, and sales on financial and technological performance aim to mitigate the confounding effects of irrelevant variables in the study [61]. Path coefficients and t-values of three control variables showed no statistical significance, resulting in no confounding effects in types of industry (path coefficient = −0.101, t = 0.722), number of employee (path coefficient = 0.162, t = 0.537), and sales (path coefficient = 0.133, t = 0.436) on financial performance, as well as on technological performance with the types of industry (path coefficient = 0.123, t = 0.964), number of employee (path coefficient = −0.293, t = 0.857), and sales (path coefficient = 0.445, t = 1.275).
The structural equation modeling analysis of the research model is shown in Figure 2, and the results of the structure path estimates are shown in Table 5.

5.3. Mediating Effects Analysis

This study examined the mediating effects of technology absorptive capability between digital entrepreneurial orientation and digital innovation and of digital innovation between digital entrepreneurial orientation and business performance (financial and technological performance). The study also researched the mediating effects of digital innovation between technology absorptive capability and business performance (financial and technological performance), as well as the co-mediating effects of technology absorptive capability combined with digital innovation and business performance (financial and technological performance).
Table 6 presents the results of the proposed hypotheses obtained through bootstrapping with 5000 resampling iterations. The results in Table 6 show that the indirect impact of digital entrepreneurial orientation on digital innovation has a beta value of 0.489 and a t-value of 5.778. As the indirect effect in H5 (DEO -> TAC -> DI) was statistically significant, the hypothesis was adopted. The positive values below the lower limit (here after LL) (0.322) or above the upper limit (here after UP) (0.655) indicate the absence of zero in the confidence interval, further validating the mediating effect.
H6a pertains to the mediating effects of digital innovation between DEO and FP, and H6b is those between DEO and TP. As the indirect effects DEO -> DI -> FP and DEO -> DI -> TP were significant, these hypotheses were adopted. The results relative to the LL and UP validate the mediating effects.
The results of H7a (β = 0.385, t = 5.214 ***), H7b (β = 0.398, t = 5.223 ***), H8a (β = 0.328, t = 5.050 ***), and H8b (β = 0.318, t = 4.984 ***) also supported significant mediating effects.

5.4. Moderating Effects Analysis

The next step was to test the remaining hypotheses H9a/H9b/H9c/H9d/H9e that concerned the moderating role of industry type on the relationships among DEO, TAC, DI, FP, and TP. We performed a multi-group analysis using the permutation study, which is currently the most widely applied technique [54,55,57,65]. The results are reported in Table 7. As seen in Table 7, for hypotheses H9b, H9c, H9e, there was no moderating effect according to industry type, while for H9a and H9d, a moderate effect of industry type was observed. Therefore, it can be said that the industry type moderation is higher in the non-IT industry group than it is in the IT industry group when the relationships between DEO and TAC and DI and FP are analyzed.

6. Conclusions

6.1. Discussions

This study aimed to identify the effects of digital entrepreneurial orientation, technology absorptive capacity, and digital innovation on business performance. Based on previous studies, variables were set, and a questionnaire was developed based on these variables. Through a series of analysis processes, the effects of DEO, TAC, and DI on business performances (FP and TP) were examined. In addition, the mediating effects among research variables were examined, and more meaningful relationships were analyzed based on these variables. In addition, the study findings derived from hypothesis verification were reconfirmed by confirming the compounding effect of control variables.
The results of this study are as follows. First, digital entrepreneurial orientation increases digital innovation as empirically supported in the context of small businesses. In other words, companies with high digital entrepreneurial orientation can achieve digital innovation by introducing digital technologies such as artificial intelligence, big data, cloud computing, and blockchain to be more progressive, innovative, risky, and digitally oriented.
Second, this research empirically showed that technology absorptive capacity influences digital innovation positively in the context of SME firms. That is, when new technological knowledge is acquired, analyzed, interpreted, and understood, it is integrated into the firm’s technological operations to help secure a competitive technological advantage. Thus, to gain a competitive advantage, firms rely on technology absorptive capacity to source and leverage external knowledge for commercial ends.
Third, digital entrepreneurial orientation increases technology absorptive capacity. This result suggests that firms using digital technology with an innovative mindset can capture new business opportunities and pursue digital value through innovation, and that the higher is the technology absorptive capacity, the better can be the digital innovation. Managers should also participate in innovative, proactive, risk-taking, digital-oriented strategies to achieve their objectives. Entrepreneurial firms should balance the capabilities of innovative, risk-taking, and proactive capabilities. To increase their performance, such firms should possess an absorptive capacity to identify the significance of external knowledge, incorporate it in their processes, and apply it to the products or services produced by them.
In addition, digital innovation improves financial and technological performance. Companies that have achieved digital innovation show high financial and technological performance. Therefore, it is necessary to make efforts to increase digital entrepreneurial orientation and technology absorptive capacity.
Finally, this study used the technology absorptive capability, digital innovation, and a combination of technology absorptive capacity and digital innovation as meditating values to validate the hypotheses above. These results imply that the entrepreneurial orientation of SMEs must be transformed into the organization’s technological absorptive capacity in order to create high performance. Therefore, these results imply that it is an important task for managers of SMEs to cultivate the key factors of entrepreneurial orientation into the value of the firm and secure technology absorptive capacity.

6.2. Implications

The theoretical contributions of this study are as follows: First, the significance of the research lies in the empirical examination of the direct relationships between digital entrepreneurial orientation, technological absorptive capability, and digital innovation in relation to business performance of SMEs. While previous studies have explored the relationships between entrepreneurial orientation and innovation on performance [11,48,49,50], this study is distinctive in its focus on digital entrepreneurial orientation and digital innovation. Second, the significance of this study contributes by confirming the mediating effect in the relationship between digital entrepreneurial orientation, technological absorptive capacity, and digital innovation in business performance. As firms undergo digital transformation and digital technologies and businesses continue to grow, the digital capabilities of entrepreneurs have become increasingly important. Previous studies such as Sungthong et al. [41], Alshahrani and Salam [14], and Aljanabi [21] conducted studies on the relationship between entrepreneurial orientation and absorptive capacity, but not on digital entrepreneurial orientation and digital innovation, nor did they analyze the relationship between financial and technological performance. The significance of this study is that it expanded the analysis to include not only the relationship between digital entrepreneurial orientation and technological absorptive capacity, but also digital innovation and financial and technological performance.
This study also differs from other previous studies by underscoring the synergy effect between digital entrepreneurship and technological absorptive capacity, which indirectly affects business performance. This study is significant in that it assesses not only financial performance but also technological performance. These findings will highlight the importance of technological performance for firms aiming to achieve digital innovation through digital technology.
The practical implications are as follows: First, firm managers should focus on fostering digital entrepreneurial orientation. Digital entrepreneurs are highly adaptable to technological advances and market changes, allowing them to remain competitive and ensure sustainable management in a rapidly evolving environment. Therefore, it is crucial to emphasize the importance of proactive entrepreneurial attitudes such as change, innovation, and risk-taking through digital entrepreneurship. It is also essential to cultivate a digital organizational culture that strengthens capabilities in response to technological shifts.
Second, firm managers should acknowledge the importance of technology absorptive capacity and provide training to employees so they can effectively incorporate digital technologies to their work. Additionally, they should hire employees who understand overall digital technologies and are skilled in data analysis and digital technology application. Finally, educational programs are crucial for building competencies in various aspects of digital entrepreneurship for those aiming to launch businesses based on digital technologies. Digital entrepreneurship can be enhanced through education on artificial intelligence, data analysis, web development tools, and cyber security.
This study investigated the effects of DEO, TAC, and DI on corporate finance and innovation performance and studied the mediating effects between each research variable. Specifically, this study provided the status of digital technology adoption by firms. The adoption of cloud computing, big data, IoT, AI, and blockchain was investigated, as representative digital technologies. The firms responding to this study adopted cloud computing the most, followed by big data, AI, IoT, and blockchain.
However, all research has limitations and limited scope, and this study also has such limitations. Recognizing these limitations, we propose future research tasks to further explore this area.

6.3. Limitation and Future Study

The limitations of this study are as follows. First, the number of samples in this study is 122, which may limit generalization, as does inclusion of only SMEs in Republic of Korea. This research only applied a quantitative methodology in a cross-sectional study to investigate the relationships among digital entrepreneurial orientation, absorptive capacity, digital innovation, and performances. While our data are cross-sectional, which is a common feature of entrepreneurial orientation and absorptive capacity studies (see, for example, the studies by Sungthong et al. [41], Alshahrani and Salam [14], and Aljanabi [21]), future studies could use longitudinal data to provide specific insights into combinations that foster digital innovation and financial/technological performance over a longer time frame.
Cross-sectional studies are useful for comparing the status of different groups or identifying patterns or trends at one point in time, but they have difficulty identifying changes over time and clearly explaining causal relationships between variables. Longitudinal research is able to explore dynamic relationship because it examines a certain time interval. It is conducted repeatedly over a long period of time, it can examine changes in the subjects and situations. This allows for a clear explanation of the inter-relationships between variables.
In addition, since SMEs are not obligated to disclose their financial statements, it is difficult to obtain accurate financial performance. This research, thus, did not determine financial performance based on quantitative financial data. Notwithstanding some limitations, this study empirically verified the relationships among digital entrepreneurial orientation, technology absorptive capacity, and digital innovation and their effects on business performance.
Therefore, future researchers are encouraged to extend the study to a larger scope or to other industries (e.g., distribution, logistics, finance, and insurance). Additionally, if future researchers secure a sufficient sample size and conduct studies to examine the control and moderating effects of factors such as company size, industry, and digital maturity, the impact of the study will be enhanced. Future studies, after obtaining financial statements of SMEs, may analyze the management performance of SMEs using return on assets (ROA), return on equity (ROE), and return on sales (ROS). Also, longitudinal studies should be considered to explore more deeper causal relationship among variables.

Author Contributions

Conceptualization, S.H.J. and C.W.L.; methodology, S.H.J.; software, S.H.J.; validation, S.H.J. and C.W.L.; formal analysis, S.H.J.; investigation, S.H.J.; resources, C.W.L.; data curation, S.H.J. and C.W.L.; writing—original draft preparation, S.H.J.; writing—review and editing, C.W.L.; visualization, S.H.J. and C.W.L.; supervision, C.W.L.; project administration, S.H.J.; funding acquisition, C.W.L. All authors have read and agreed to the published version of the manuscript.

Funding

This work received no external funding.

Data Availability Statement

The data presented in this study are available upon request to the corresponding author.

Acknowledgments

This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2021S1A5B5A16077451).

Conflicts of Interest

The authors declare no conflicts of interest.

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Systems 13 00300 g001
Figure 1. Research model.
Figure 1. Research model.
Systems 13 00300 g001
Systems 13 00300 g002
Figure 2. Structural equation modeling analysis of the research model.
Figure 2. Structural equation modeling analysis of the research model.
Systems 13 00300 g002
Table 1. Characteristics of the respondents.
Table 1. Characteristics of the respondents.
VariablesItemsFrequencyPercentage (%)
GenderMale
Female		99
23		81.1
18.9
Age20–29 (years)
30–39
40–49
50 and over		11
20
60
31		9.0
16.4
49.2
25.4
Work
experience		Shorter than 3 (years)
3–10
10–19
20 and over		20
22
52
28		16.4
18.1
42.6
22.9
Types of
industry 		IT
Non-IT		59
63		48.4
51.6
Number of
employees		Fewer than 500
500 and over 		62
60		50.8
49.2
Sales volumesLess than 50 billion won
50 billion won and over		58
64		47.5
52.5
Digital technology
adoption		Cloud computingYes
No		86
36		70.5
29.5
Big dataYes
No		71
51		58.2
41.8
IoTYes
No		35
87		28.7
71.3
AIYes
No		58
64		47.5
52.5
BlockchainYes
No		31
91		25.4
74.6
Total122100.0
Table 2. Measurement items of the constructs.
Table 2. Measurement items of the constructs.
VariablesItemsIndicatorsRelated
Literature
Digital entrepreneurial orientation
·
Emphasis on technological innovation
·
Acceptance of new and creative ideas
·
Continuous investment in new digital technologies
·
Forecasting ability to seek competitive IT development
·
Proactiveness to high-risk investment in digital technologies
·
Competitive adoption of new products, services, and digital technologies introduced early in the market
·
High-risk investments in digital technologies to stimulate future growth
·
Investment in digital technologies when high returns are expected
·
Ability to take risks with changes in the digital technology environment
·
Likelihood of predictive digital changes such as customers, technologies, and ecosystems
·
Use of digital technologies as priority means to solve problems
·
Seeking opportunities to utilize digital technologies for innovation
·
Acceptance of new digital technologies
13[11,17]
Technology absorptive capacity
·
Initiative in acquiring and utilizing digital technologies
·
Acceptance of new digital technologies
·
Capability to apply absorbed external digital technologies
·
Sharing digital technologies and integrated approaches across departments
4[58,59]
Digital
innovation
·
Quality of products and services using digital technologies are superior to those of competitors
·
Products and services provided to customers via digital technologies superior to those of competitors
·
Products and services distinct from those of competitors
·
Knowledge of new digital technologies incorporated into offerings
4[17,60,61]
Financial performance
·
Increased sales returns
·
Higher return on investment
·
Increased cash flow per transaction
·
Increased sales
4[14,50]
Technological performance
·
Increased R&D budget input ratio
·
Greater number of new products and services
·
Increased number of patent applications
·
Shortened development cycles for new products
4[47,62]
Table 3. Validity and reliability of constructs.
Table 3. Validity and reliability of constructs.
VariablesItemsOuter LoadingαCR (rho_a)CR (rho_c)AVE
DEODEO1
DEO2
DEO3
DEO4
DEO5
DEO6
DEO7
DEO8
DEO9
DEO10
DEO11
DEO12
DEO13		0.821
0.821
0.872
0.893
0.881
0.882
0.838
0.837
0.834
0.868
0.870
0.872
0.859		0.9700.9710.9730.736
TACTAC1
TAC2
TAC3
TAC4		0.938
0.962
0.946
0.933		0.9600.9610.9710.893
DIDI1
DI2
DI3
DI4		0.939
0.947
0.874
0.923		0.9400.9450.9570.848
FPFP1
FP2
FP3
FP4		0.946
0.947
0.935
0.928		0.9550.9630.9680.882
TPTP1
TP2
TP3
TP4		0.886
0.899
0.834
0.864		0.8950.9040.9270.759
Notes: AVE: Average variance extracted; CR: Composite reliability; α: Cronbach’s alpha; DEO: Digital entrepreneurial orientation; TAC: Technology absorptive capability; DI: Digital innovation; FP: Financial performance; TP: Technological performance.
Table 4. Discriminant validity.
Table 4. Discriminant validity.
Fornell–LarckerHTMT
VariablesDEOTACDIFPTPDEOTACDIFPTP
1. DEO0.878
2. TAC0.7240.945 0.753
3. DI0.6890.7400.921 0.7200.778
4. FP0.5930.5990.6500.939 0.6120.6230.679
5. TP0.6000.6440.6720.5950.8710.6370.6870.7250.631
Notes: DEO: Digital entrepreneurial orientation; TAC: Technology absorptive capability; DI: Digital innovation; FP: Financial performance; TP: Technological performance. The values of the diagonal in Fornell-Larcker analysis are the square root of the AVE values.
Table 5. Structure path estimates.
Table 5. Structure path estimates.
Hypothesis Coefficient (β)t-ValueResults
H1DEO -> DI0.3002.868 **Supported
H2TAC -> DI0.5935.916 ***Supported
H3DEO -> TAC0.82519.947 ***Supported
H4aDI -> FP0.65012.146 ***Supported
H4bDI -> TP0.67011.316 ***Supported
Control
Variables		Industry -> FP−0.1010.722
Industry -> TP0.1230.964
Employee -> FP0.1620.537
Employee -> TP−0.2930.857
Sales -> FP0.1330.436
Sales -> TP0.4451.275
Notes: ** p < 0.01; *** p < 0.001.
Table 6. Indirect effect results.
Table 6. Indirect effect results.
HypothesisRelationshipBetat-ValueConfidence
2.5%		Interval
97.5%		Results
H5DEO -> TAC -> DI0.4895.778 ***0.3220.655Supported
H6aDEO -> DI-> FP0.1952.762 **0.0650.342Supported
H6bDEO -> DI -> TP0.2012.741 **0.0680.355Supported
H7aTAC -> DI -> FP0.3855.214 ***0.2440.530Supported
H7bTAC -> DI -> TP0.3985.223 ***0.2480.550Supported
H8aDEO -> TAC -> DI -> FP0.3285.050 ***0.2040.463Supported
H8bDEO -> TAC -> DI -> TP0.3184.984 ***0.1990.448Supported
Notes: ** p < 0.01; *** p < 0.001.
Table 7. Moderating effect results.
Table 7. Moderating effect results.
HypothesisRelationshipPath CoefficientConfidence Intervalp-ValueResults
ITNon-ITDifference(2.5%; 97.5%)
H9aDEO -> TAC0.7010.870−0.170(−0.162; 0.153)0.036 **Supported
H9bDEO -> DI0.1880.447−0.259(−0.423; 0.398)0.237Not supported
H9cTAC -> DI0.6930.4530.240(−0.392; 0.389)0.256Not supported
H9dDI -> FP0.4820.733−0.251(−0.234; 0.216)0.031 **Supported
H9eDI -> TP0.6970.6620.035(−0.233; 0.228)0.775Not supported
Notes: ** p < 0.01.
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Jang, S.H.; Lee, C.W. Digital Entrepreneurial Orientation, Technology Absorptive Capacity, and Digital Innovation on Business Performance. Systems 2025, 13, 300. https://doi.org/10.3390/systems13040300

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Jang SH, Lee CW. Digital Entrepreneurial Orientation, Technology Absorptive Capacity, and Digital Innovation on Business Performance. Systems. 2025; 13(4):300. https://doi.org/10.3390/systems13040300

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Jang, Sung Hee, and Chang Won Lee. 2025. "Digital Entrepreneurial Orientation, Technology Absorptive Capacity, and Digital Innovation on Business Performance" Systems 13, no. 4: 300. https://doi.org/10.3390/systems13040300

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Jang, S. H., & Lee, C. W. (2025). Digital Entrepreneurial Orientation, Technology Absorptive Capacity, and Digital Innovation on Business Performance. Systems, 13(4), 300. https://doi.org/10.3390/systems13040300

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