EXPLORING HOSTILE BUSINESS ENVIRONMENT AS A MODERATOR IN THE EFFECT OF INNOVATION ON FINANCIAL PERFORMANCE OF MANUFACTURING FIRMS IN KENYA

Abstract

Using entrepreneurship orientation- performance relationship theory, we explore the effect of hostile business environment (HBE) in moderating the relationship between innovation and financial performance of manufacturing firms. Specifically, we explore the moderating effect of HBE on innovation and financial performance of manufacturing firms, and the effect of innovation on the financial performance of manufacturing firms in Kenya. To achieve this, a sample of 200 firms is used to provide data. Ex post facto design, which investigates possible cause and effect relationships between variables, is used. Hierarchical Multiple Regression analysis among the variables is conducted to statistically test the hypotheses. The findings of the HBE on the relationship between innovation and financial performance of manufacturing firms gave a strong positive coefficient as well as those of innovation on financial performance of manufacturing. The paper concludes that HBE moderates the effect of the relationship between innovation and financial performance of manufacturing firms in Kenya. On the basis of these findings the paper recommends that managers and entrepreneurs of manufacturing firms as well as academicians and policy makers should understand the roles of HBE and its effect on moderating the relationship between innovation and financial performance of manufacturing.