The Mediating Role of Innovation Capability in the Relationship Between Entrepreneurial Orientation and SME Performance in South East Nigeria

This study empirically tests innovation capability as a mediating mechanism in the relationship between entrepreneurial orientation and small and medium enterprise performance in South East Nigeria, filling a research gap on the process through which entrepreneurial orientation produces performance outcomes in the Igbo business cultural context. Prior studies in Nigeria have documented positive relationships between entrepreneurial orientation and SME performance but have not systematically examined the mediating pathways through which entrepreneurial attitudes and behaviours translate into measurable business results. The study employs a cross-sectional survey design, administering validated scales for entrepreneurial orientation, innovation capability, and business performance to 250 SME owners and managers in Anambra, Imo, and Enugu States. Data were collected through stratified sampling of business registration lists from state government databases. Structural equation modelling with bootstrapped mediation analysis was applied. Findings confirm a significant positive total effect of entrepreneurial orientation on SME performance. Innovation capability partially mediates this relationship, with the indirect path through innovation capability accounting for approximately 38 percent of the total effect. The mediation is stronger for product-related than process-related performance outcomes. Proactiveness is the entrepreneurial orientation dimension most strongly associated with innovation capability development. The study provides the first empirical mediation evidence for this relationship in the South East Nigerian SME context, contributing original findings to the regional entrepreneurship literature. Keywords: entrepreneurial orientation, innovation capability, SME performance, mediation, South East Nigeria.