Absorptive capacity and firm performance: A research in ESO

Knowledge has become an indispensable factor for business survival in today's world characterized by intense competition. Therefore, development of a firm's absorptive capacity, which can be stated as its ability to acquire, assimilate, transform and exploit knowledge has become of paramount importance. This study aims to determine the relationship between a firm's absorptive capacity and its performance. The study employs questionnaire technique for data collection. The sample consists of 598 useable questionnaires obtained from firms in automotive, metal manufactured goods, food and textile industries, registered with Eskişehir Chamber of Industry (ESO). Structural equation modelling (SEM) was employed to test the relationship between absorptive capacity and firm performance as put forth by the extant literature. Findings parallel the literature in regards to the relationship between the dimensions of absorptive capacity. The strongest effect was found between absorptive capacity and financial performance, followed by commercial and operational performance. Level of absorptive capacity was observed to vary by demographic profiles of managers and firm's industry and firm size. Suggestions for increasing absorptive capacity of firms, based on research findings, are also provided. Keywords: Absorptive Capacity, Firm Performance, Eskişehir Chamber of Industry, Organizational Learning, Contingency Approach, Structural Equation Modelling (SEM)