Abstract
The sustainability challenges of nascent firms in developing economies were a motivation for this study. Hence, a direct effect of entrepreneurial finance on nascent firms’ sustainability was investigated. The study proposed an integrative model that accounts for innovation capability and government support, as mechanisms in explaining the entrepreneurial finance and sustainability nexus. Data collection was with questionnaire from a sample set of 235 nascent entrepreneurs. Structural equation model with the aid of SmartPLS was used for the data analysis. The study found that entrepreneurial finance, innovation capability and government support all have a direct positive effect on nascent firms’ sustainability. Innovation capability, in contrast, partially mediates the relation between entrepreneurial finance and sustainability. However, the study failed to account for a conditional effect of government support on the indirect effect of innovation capability on nascent firms’ sustainability. The study validates the resource dependence theory as a theoretical lens and highlights the fundamental issues that drive sustainability as it relates to new-born firms, most especially from an emerging economy perspective.
Introduction
Nascent enterprises are at the centre of all entrepreneurial activities, as they usually take advantage of the opportunities that exist in their environment to provide quality services or products that satisfy consumer needs. However, most nascent enterprises face several problems, including uncertainty about the market acceptance of their products/services, scarcity of human and technological resources and others that may limit the financing alternatives available to nascent enterprises. Aside the numerous challenges confronting nascent entrepreneurs, when starting a new enterprise and accessing new markets, financing the entrepreneurial venture is the primary and fundamental impediment to their development and sustainability (Anwar et al., 2020).
Entrepreneurial finance explains the financing sources and decision of businesses (Cumming & Johan, 2017). Access to finance is seen as a major obstacle to starting a new business and in entering into an existing market, most especially, where there are bigger firms (Goldenstein et al., 2019). Financing choices taken at the early stages of the entrepreneurial process have a long-term influence on the growth of the enterprises (Hechavarrıa et al., 2016).
Also, despite the large array of nascent businesses, however, only a few could get access to the necessary funding for the operation and management of their business (Gaies et al., 2021; Warhuus et al., 2021). The presence of viable opportunities but limited financial capacity leads to finance gap, which could affect their sustainability. About half of the enterprises usually collapse within the first 5 years of operation (Dilger, 2018), and this is because most often these nascent enterprises are led to assume that financing is readily available, yet obtaining them remains a challenge. Thus, it is necessary to address entrepreneurial financing and nascent businesses sustainability relation.
There remains limited knowledge on entrepreneurial financing activities of nascent firms (Warhuus et al., 2021). Also, previous scholarly researches have made effort to link entrepreneurial finance and other organizational outcome such as growth (Bhaumik et al., 2015); corporate social responsibility (Khattak et al., 2021); new venture success (Anwar et al., 2020). However, there have been limited studies that have accounted for the direct effect of entrepreneurial finance on sustainability. There have also been divergent findings in the outcome of previous studies that explored entrepreneurial finance and organizational outcomes. Hence, making it necessary to explore this concept further and the nature of its link with organizational sustainability.
Nascent businesses may not be able to obtain all the desired financing, since they lack the significant resources that can be useful to attract the financing and converting same for competitive edge (Anwar et al., 2020; Warhuus et al., 2021). However, the presence of innovation capability could be a defining factor, most especially at the early stage of their operation (Rosenbusch et al., 2011) in driving financial growth and success. Innovation capability has been described as an organization resource that is vital in driving improved competitive edge (Babarinde, 2021). Since the financing avenues are narrower for nascent firms, it is only vital that they build innovation capability, as a medium that helps guide their finance needs and support them in channelling same towards gaining increased sustainability.
Previous researches exploring innovation capability-sustainability nexus covered mainly large- and small-scale firms (Hanaysha et al., 2021; Lai et al., 2015) with limited researches on nascent firms. This study closed this gap because nascent enterprises can gain more when they are able to develop, nurture and accept innovation. Also, there have been studies that linked innovation capability and organizational performance and sustainability (Hanaysha, 2020; Maldonado-Guzmán et al., 2020), it is quite surprising why there have been paucity of studies directed on nascent firms’ sustainability, which is another gap this study closed.
Innovation capability is a key driver of organizational sustainability (Sriboonlue et al., 2016); however, nascent businesses differs in the degree to which they can develop their capabilities, which makes one wonder what complimentary role could government support play in explaining this relation. This is because government support is fundamental in strengthening the innovation effort of businesses (Otache & Usang, 2022), as such, its low support could negatively impact the mediating effect of innovation capability on entrepreneurial finance and sustainable performance relation. Hence, there is a need to explore how government support moderates the indirect effect of innovation capability of nascent firms.
Nascent enterprises are usually faced with disproportionate share of loss of funding, which happens as a result of poor access to information, regulatory factors and market failure. Hence, a seeming lack of government support could wash away the potential positive influence of developing innovation capability as a mechanism that drives their financing efforts to gain improved sustainability. In most developing economies, most especially Nigeria, most nascent businesses rely largely on internal sources of finance to fund their ideas. However, this kind of funding is insufficient. Even when they can source external funding, its relevance is usually for coping with increased financing needs and not for innovation.
However, there have also been concerns that the external source of funding given are very expensive and demands high rates of return, which explains why most nascent firms in developing economies are not able to address their sustainability needs, hence, accounting for the growing collapse of nascent businesses in developing economies. Hence, this current study explored the direct effect of entrepreneurial finance on nascent firms’ sustainability using an integrative mediation-moderated model of innovation capability and government support.
Theoretical Foundation and Hypotheses Development
Nascent firm finance sourcing and its antecedent influence on their sustainability were explored through the resource dependence theory. The theory holds that a firm is inextricably linked to its external environment and the resources inherent in that environment. Hence, understanding these elements aids in minimizing the organization’s reliance on its environment. Businesses would remain susceptible to the forces in their environment if it relies heavily on the external assets in running and managing its business; nonetheless, identifying and building resistance over such vulnerability would portend greater benefit for the organization (De Prijcker et al., 2017).
Access to external funding would help nascent firms achieve their overall goals and objectives; however, overtly depending on the external environment for the entirety of its required resources would place it at a disadvantaged position, thereby its interactions with the external environment could affects its sustainability (Pfeffer, 2003).Within the scope of this research, the theory explains how nascent entrepreneurs are dependent on entrepreneurial finances as a medium to gain sustainability, and how to manage the potential vulnerability in the resource dependent (entrepreneurial finance) factors in their environment, so they do not act as negative factors that could affect their sustainability.
Our argument in line with this theory is grounded on the assumption that nascent entrepreneurs are faced with resource challenges; however, there should be limited dependence of its reliance on the external environment (government support), as a driver that would drive its innovation capability in exploring its finance effort towards gaining sustainability. Though the theory was designed for large organizations, however, previous literature has confirmed its usefulness in explaining nascent firm’s activities (Roundy, 2019). Lastly, we argue that to understand the process through which entrepreneurial finance accounts for nascent firms’ sustainability, it is imminent that we explore the mechanism through which the sourced finance, most especially the external, could be developed internally to drive increased sustainability. We posit that innovation capability can be used to manage the finances dependent sources of nascent firms.
Entrepreneurial Finance and Sustainability of Nascent Firms
The unpredictable aspect of today’s global marketplaces has increased the demand on new enterprises to rethink how they generate funds to run their business and maintain their operation, so as to ensure increased sales, and the entirety of their technical and management performance. In this study, nascent firms were regarded as businesses that have been in operation for less than a year in a specific sector. These are not inclusive of firms that are managed basically for research or by students, which is a requirement for their education. This aligns with Reynolds (2007) notion that nascent firms represent firms that are running or have functioned in a certain specific market for not more than a year.
The most significant issue that most new firms confront is obtaining funding for the operation and expansion of their business (Vazirani & Bhattacharjee, 2021). The effective operation of nascent enterprises is often hampered most especially with the difficulty of limited access to financing, which makes it complicated to attract the requisite human and technological resources that would aid the firm attain operational efficiency and advance their capability towards gaining increased sustainability (Eze et al., 2021; Reynolds & Curtin, 2008). This makes entrepreneurial finance a fundamental issue of concern today for nascent businesses, most especially for firms in developing economies with limited support systems.
The fundamental tenets of entrepreneurial finance are derived from the concept of entrepreneurship and finance. Entrepreneurial finance, according to Leach and Melicher (2014), is the use and modification of financial resources, approaches, and ideas to effectively strategize, fund, operate and evaluate a business. Entrepreneurial finance is concerned with a venture’s financial management as it progresses through the entrepreneurial process (Cumming et al., 2018). Kerr et al. (2014) explained that entrepreneurial finance accounts for how angel investors and venture capitalists help business owners launch a new business idea or extend their existing enterprise’s business operations.
It is worth noting that an effective entrepreneurial process entails identifying possibilities, assembling the appropriate human, material and technological resources, as well as handling and expanding activities with the central purpose of creating value. At each stage of the entrepreneurial process, operating costs and asset expenditures must be financed in some way (Leach & Melicher, 2014). Entrepreneurial finance is crucial to the survival and growth of nascent enterprises because practically all entrepreneurial ventures will suffer severe economic and monetary issues in its formative years (Emenike, 2021). To flourish, most businesses would have to re-organize and reconfigure severally (Leach & Melicher, 2014).
The traditional financing routes for nascent firms were personal financing, freelancing, relatives and friends, consumers and distributors, renting and exchanging among others. (Chemmanur & Filthier, 2014; Mustapha & Tlaty, 2018). However, recent global advancement has opened up numerous financing mediums, which were initially not there for use, until recently, such as accelerators and incubators, support institutes, tertiary institutions-based start-up endowments and online crowdfunding among others (Bellavitis et al., 2016; Emenike, 2021). All these mediums have their unique benefits and drawbacks, and they can be used at various stages of a company’s entire lifespan (Bellavitis et al., 2016). However, the extent these financing models would account for sustainability of nascent firms have remained elusive in the literature.
Sustainability entails paying concurrent attention to social, economic and environmental performance of an organization over a period (Colbert & Kurucz, 2007). For a long time, scholarly literature has focused on the sustainability of businesses (Ibobo, 2018; Khan & Quaddus, 2015). In our study, we define organizational sustainability as deliberate strategy that generates value while preserving and enhancing economic, environmental and social development of a business internal and external environment over time.
This study holds that the productivity, growth and environmental advancement of nascent firms are all indicators of their sustainability. Organizational sustainability shows a company’s commitment to the well-being of its stakeholder both internal and external. The sustainability performance of an organization is observed and evaluated by their stakeholders (Nnabuife & Onwuzuligbo, 2015). Sustainability performance stimulates partners’ collaboration, which assists the company in achieving its goals by integrating the interests of the organization and its stakeholders.
Nascent firms require financial resources to generate value, explore possibilities and launch new concepts, and doing this demands enormous time and resources, as such, it makes entrepreneurial finance fundamental in building new ventures and ensuring the sustainability of firms. Nascent firms support increased economic growth and development (Mustapha & Tlaty, 2018; Nguyen et al., 2020), this makes their sustainability fundamental. Hence, addressing their access to finances will not only be beneficial to society but could also lead to increased sustainability performance. Finance has always been seen as a vital component in the growth of enterprises (Cook, 2001). As is commonly acknowledged, a lack of sufficient financing and access to credit are frequently identified as fundamental impediments to a company’s long-term sustainability (Nguyen et al., 2020).
When nascent firms have increased access to finance, it would help them be more innovative, improve technology growth (Turban & Greening, 1997), and more importantly attract an innovative workforce that has a shared commitment to the growth of the organization. The study of Khattak et al. (2021) found that a positive link between entrepreneurial finance and financial performance. Similarly, Wasiuzzaman et al. (2020) confirmed that firms with increased access to finance have better sustainable performance. Access to finance will help nascent firms achieve greater sustainable performance, which helps in addressing the negative effects of regulatory actions, thereby allowing the firm to build and endear consumers that are socially conscious. Hence, we propose that:
H1: Entrepreneurial finance positively affects the sustainability of nascent firms.
With the fast pace of development of the global economy, organizations have begun incorporating technology and innovation into their strategies, while viewing it as a critical resource for rapid expansion and long-term viability. As a result, it explains the rising attention and investment of time and resources to innovate. However, intense rivalry, the rapid rate of technical progress, and shifting consumer needs have rather made innovation effort of firms to be considerably more difficult (Dasgupta et al., 2011). As the ease of access to information, which is linked to innovation, has further made innovation more demanding. It thus supports the need for firms to develop their innovation capability, as response to market changes, which Calantone et al. (2002) described as the degree of a firm’s innovation.
Innovation capability may be defined in a variety of ways as well as at different degrees, depending on how well it fits overall needs of a company’s activities and the extent it supports changing conditions and the competitive environment (Guan & Ma, 2003). Innovation capability is critical towards achieving competitive edge and accounts for competitive benefit to the organization. In terms of evolutionary theory, it is seen to be important for companies to gain and maintain strategic edge, as well as to improve company efficiency, most especially in business environments that are dynamic (Sher & Yang, 2005). Innovation capability explains the dynamics of a company’s culture on innovation, continuous improvement capabilities, and capacity to understand the interplays in a given market (Neely et al., 2001).
According to Babarinde (2021) innovation capability entails the information and abilities needed to effectively integrate and improve existent technological solutions, as well as creating new technologies that could serve the present and future needs of the organization. In this study we defined innovation capability as the capacity to make significant enhancements and alterations to modern methods, as well as the potential to develop new ones. Innovation capability is a critical element in fostering innovation in a firm’s culture, as well as advancing internal operational processes, in such a manner that it allows for quick understanding and addressing appropriately external environmental factors that could affect nascent firms’ sustainability.
Most often nascent firm may not have the resources and technical know-how to address changes in their operating environment; however, building strong innovative capability could allow them develop new or existing knowledge, as well as guide them in the actual implementation and continued development of the knowledge and unique solutions inside the company so as to gain increased sustainability. The capability to innovate is what provides the capacity for strong internal response, which addresses systematic innovation activities internally that would guarantee nascent firms improved sustainability.
Nascent business’ ability to strive towards building and improving on their innovation capability would lead to improving the quality of their product offering, produce more new improvised products, raise profitability and gain improved market share, which would enhance their sustainability (Bellucci et al., 2020). There have been several studies which have made attempt at exploring the link that accounts for the relation between innovation capability and performance (Hanaysha, 2020; Hanaysha et al., 2022), and quiet several limited studies have accounted for innovation capability influence on organizational sustainability. Lawson and Samson (2001) examined process of building innovation capability in firms and its influence on the entirety of their performance and found that innovation capability drives increased performance. Similarly, Sriboonlue et al. (2016) found the link between innovation capability and business sustainability to be positive and significant. Babarinde (2021) also found that innovation affects firm’s sustainable advantage.
The most essential factor influencing the sustainability or profitability of a company is their level of innovation (Hanaysha et al., 2022; Sriboonlue et al., 2016). Therefore, nascent firms innovating would lead to economic growth and would allow them smartly harness growing opportunities in their business environment (Jimenez-Jimenez & Sanz-Valle, 2011). The sustainability of nascent firms would enhance collaboration and coordination, which can be easily formed through sustained innovation capability development. This would drive better efficiency and help start-ups gain increase for their product/services (Hartono & Kusumawardhani, 2018). Nascent businesses can benefit significantly from building innovation capability, as it will allow them use innovative approach in generating and nurturing creative ventures, which would help ensure they get a higher possibility of expanding, thriving and gaining sustainable performance, as a result (Rosenbusch et al., 2011). Hence, we propose that:
H2: Innovation capability affects the sustainability of nascent firms.
Government support for micro businesses is a major issue of interest to scholars in recent times (Garba, 2020; Tekele, 2019). For us in this study, government support accounts for the entirety of the financial and non-financial support that government offers to businesses. The financial support could be in form of loans, credit, subsidies, grants and seed funds. The non-financial support includes the policies and programmes of government that are directed towards offering business competitive advantage. The support could be in form of regulation, and Dau and Cuervo-Cazurra believed that the regulatory function of government is to develop initiatives that will ensure a level playing ground for all players. The rules set up by government are usually for safe-guiding nascent entrepreneurs from disaster in the market and to ensure the continued existence and sustainability of their ventures.
Also, government support for nascent firms can be in the form of intervention which manifests in form of financing and creating an enabling environment where entrepreneurship can thrive. Songling et al. (2018) indicated with their study that government support plays a fundamental role in driving increased sustainable competitive position of firms. The presence of government support would help stimulate nascent firms existing within a locality via solid government policies focus on enhancing the value of entrepreneur and high performing companies would help drive sustainability (Songling et al., 2018). These can be done through supporting nascent firms’ interest though the study of Zulu-Chisanga et al. (2021) found a non-significant link between government support and small and medium enterprises (SMEs performance).
The presence of regulatory support can be a springboard that nascent firms can leverage on towards achieving their sustainable performance and this can be achieved through the presence of strong and active monetary market to facilitate creativity and by providing direct subsidies and finance to boost nascent firms (Luo et al., 2020). The study of Alkahtani et al. (2020) found that government support drives small businesses sustainable competitive performance. When government support constitutes a vital component of nascent firms’ regulatory mechanism, it would help them better manage the reactionary influence of institutional voids and provide them the requisite medium to build their capacity, which would help ensure they gain sustainable performance. Hence, we propose that:
H3: Government support accounts for improved sustainability of nascent firms.
Mediating Effect of Innovation Capability on Entrepreneurial Finance and Sustainability of Nascent Firms
Availability of financing remains a major impediment to nascent firms’ expansion and sustainability (Warhuus et al., 2021). Capital and finance are very important for nascent firms, as it has a direct impact on their sustainability, most especially, within their early years of operation. However, developing capabilities that allows them effectively utilize their immediate resources in advancing their operations or even producing new products could improve their sustainability. Innovation capability for nascent firms could be improvement of work and service (Sulistyo & Ayun, 2018), and it can also be their reaction to the rapid variation in the current ambient business environment. The swift response in product offerings, adjusting to consumers demand, proactiveness, alertness and opportunity recognition could form an innovative behaviour that would ensure the business gain sustainability irrespective of the limited finances (Tsai & Tsai, 2010).
The limited access to finances by nascent firms could affect their sustainability; however, if the firm is able to build innovative services and products, it could allow it respond better to market changes and enhance their sustainability performance even at the infant cycle of their business. The absence of prior financial or operating history and the absence of any reputation or track-record pose a unique finance problem for nascent firms (Long et al., 2022), which could affect their sustainability. However, the ability to develop a high innovation capability would allow it create an environment that fosters and supports creative ideas (Huhtala et al., 2014). The presence of a strong innovation capability can be leveraged on in seeking other modern financing medium that are rather more concerned with your ideas, creativity and feasibility of the business than your financial records or history on the business.
When contrasted to long existing large organizations, nascent firms usually face difficulty acquiring financial resources, as such, they are more susceptible to market changes (Warhuus et al., 2021). Therefore, it makes it pertinent that they can thrive and gain competitive edge, which could be through product attributes, cost and price. Sustainability for nascent firms demand capability to develop new process, product/services, as such, when financing options are channelled through a developed innovation capability, there is a greater prospect for improved sustainability performance. Innovation capability would allow them dynamically and deliberately sequence and tailor their fund raising, and follow-up multiple mediums of finances at varied periods of their life cycle, thereby, guaranteeing improved sustainable performance. Hence, we propose that:
H4: Innovation capability mediates between entrepreneurial finance and sustainability of nascent firms.
Ayyagari et al. (2012) noted that government support is vital in ensuring the development and sustainability of SMEs in a country. The presence of government support would complement the innovative capability of nascent business and support them in their finance effort towards gaining improved sustainable performance. Non-financial support has been said to account for greater levels of innovation (Cano-Kollmann et al., 2016), most especially through skill development and special programmes for nascent business would allow them gain new knowledge, which when combined with the capability to modify and create new process, product and services would be ensure the financing needs of nascent firms are rather not a barrier to achieving higher sustainable performance.
Similarly, the presence of strong financial government support would strengthen the innovation capability of nascent business, as it allows them undertake new approaches, most especially considering the complexity of their business environment, thereby improving their sustainability. Adam and Alarifi (2021) found that external support aids strengthen the positive impact of SMEs’ innovation practices on business survival. The support provided by government would be instrumental to nascent firms’ innovative ability and further motivate them to achieve improved sustainable performance. Otache and Usang (2022) and Choi et al. (2021) both found that government support moderates the link between innovation capability and SME performance. Thus, we argue that government support moderates the mediating effect of innovation capability of nascent. Hence, we propose that:
H5: The indirect effect of innovation capability is moderated by government support.
Methodology
Cross-sectional survey design was used and 335 nascent entrepreneurs were selected for the study from the National directorate of employment (NDE) training programme for nascent business in Nigeria. The study made effort to ensure that participants selected covers at least two states in the country. To achieve this, we followed up with the NDE monthly programmes since the training programme is usually carried based on each state in the country of the 36 states in the country. To confirm for sample suitability, we conducted G*power analysis and the result revealed that a minimum sample of 165 was required, thus, indicating that the sample size is suitable. Convenient sampling technique was used in selecting the participants and this was because of the challenges associated with collecting data from a large heterogeneous population and the unwillingness of the participants in most instances to engage in research for fear it could be a means of capturing tax information from them. The respondents were owners/managers, as most nascent firms usually operate using the owners/managers characterization. Questionnaire was used for data collection and was subjected to validity and reliability test. Data collection period spanned for eight months covering May 2021 to December, 2021. Partial least square structural equation model and Hayes regression-macro were used for data analysis with the aid of SmartPLSv3.9 and Hayes Process Macro on SPSSv27 (see Figure 1 for model).
Theoretical Model.
Measures
Entrepreneurial Finance
Khattak et al. (2021) scale was adapted in measuring the construct entrepreneurial finance. The scale was designed in a Likert format of 1 (strongly disagreed) to 5 (strongly agreed). The scale is made up of six items, which was used to measure the construct. Content validity was undertaken using three experts and their comments were useful towards designing the final instrument. The scale was trial tested and confirmatory factor analysis was conducted and the result from the model was confirmed fit (Brown, 2006), as the comparative fit index (CFI = 0.95), the incremental fit index (IFI = 0.92), the Tucker-Lewis fit index (TLI = 0.91) and the root mean square error of approximation (RMSEA = 0.061). All items loaded sufficiently on the scale at above 0.60 (Hair et al., 2010), as such, all the items were retained. Cronbach alpha reliability was also assessed and items produced coefficients ranging from 0.723 to 0.8112. Sample from the scale are ‘Our business has access to equity fundings’, ‘We have been availed opportunity for debt funding for our business’.
Innovation Capability
The scale of YuSheng and Ibrahim (2020) was adapted and used to measure innovation capability. The scale consists of three items. However, we added two more items to the original scale. The scale was designed in a Likert format of 1 (strongly disagreed) to 5 (strongly agreed). Content validity was undertaken using three experts and their comments were useful towards designing the final instrument. Exploratory factor analysis was conducted using SPSSv27, since we added two items to the original scale that was already modified. The result revealed a significant KMO and Bartlett’s test of sphericity (0.707, p < .005), also the result produced a single factor with all the items having a factor loading above 0.70 threshold (Hair et al., 2010), thus, indicating it satisfies the criteria. Hence, all the items were retained. Cronbach alpha reliability was also assessed and items produced coefficients ranging from 0.754 to 0.895. Sample from the instrument are ‘I have been able to identify new ideas that will help the growth of my business’, ‘Opportunities that are useful to the growth of my business have been taken to transform the way my business is carried out’.
Sustainability
Concept of Ajor and Alikor (2020) was used in measuring organizational sustainability. The scale was a composite, which captures the three dimensions of sustainability, which are the environmental, social and economic sustainability. The scale was designed in a Likert format with six (6) items of 1 (strongly disagreed) to 5 (strongly agreed). Content validity was undertaken using three experts and their comments were useful towards designing the final instrument. The scale was further trial tested and confirmatory factor analysis was conducted and the result from the model was confirmed fit (Brown 2006), as the CFI (0.93), the IFI (0.91), the TLI (0.97) and the RMSEA (0.066). All items loaded sufficiently on the scale at above 0.60 (Hair et al., 2010), as such, all the items were retained. Cronbach alpha reliability was also assessed and items produced coefficients ranging from 0.803 to 0.854. Sample from the scale are ‘We are able to address environmental concerns about our business’, ‘My business has a strong social network that aids the business’.
Government Support
Nakku et al. (2019) instrument was adapted to measure this construct. The scale was made of 10 items that covered both financial and non-financial government support. Content validity was undertaken using three experts and their comments were useful towards designing the final instrument. The scale was trial tested and confirmatory factor analysis was conducted and the result from the model was confirmed fit (Brown, 2006), as the CFI (0.911), the IFI (0.952), the TLI (0.90) and the RMSEA (0.063). Only seven items loaded sufficiently on the scale was above 0.70 (Hair et al., 2010), as such, the three items were removed. Cronbach alpha reliability was also assessed and items produced coefficients ranging from 0.709 to 0.901. Sample from the scale are ‘government provides us credit facilities that has aided our business’, ‘There have been favourable micro-aid government programmes for our business’.
Result and Discussions
Of the 335 nascent entrepreneurs invited for the study, only 258 agreed to participate in the study. However, the preliminary assessment of the returned questionnaires indicated that only 235 were found suitable for further study. The result from Table 1 shows that there were more male participants than women, and the greater percentage of the participants in the study were young adults within the age bracket of 18 to 30 years of age. To avoid sectorial bias, we ensured the participants were from diverse sectors, as this was done to improve the generalization of the study outcome. The result shows that more of the respondents were in the manufacturing sector. The respondents were mainly owner/managers. This was because in most nascent small-scale businesses the owners are usually still attached to the business. The period of operation also showed most of the business have operated between seven to ten months, which implies the respondents, already have good experience.
Demographic Distribution of Respondents.
We conducted a chi-square test since, the instrument was distributed in different states and at different times with the focus of accounting for difference from the early and late returned instruments. We found there was no significant difference between the late and early returned instrument (χ2 = 13.24, p < .01). Given the diverse sectorial components captured in the study, it was necessary to confirm if there were significant differences among the sectors. We conducted analysis of variance and the outcome from the analysis indicated that there was no significant difference (F = 128.54, p < .01).
We conducted an exploratory factor analysis as a medium to assess the Harman’s single-factor test (Podsakoff, 2012). The findings from our analysis indicate that the no factor had a variance explained that was more than 50%, as the highest was 26%, thus, indicating that common method bias cannot influence the study outcome. Normality test was also conducted using skewness and kurtosis, and the result confirms the data were normal, as none of the values were above 5 and 8 for skewness and kurtosis, respectively (Kline, 2005).
Measurement Model
The measurement model was assessed, and the results are presented in Table 2. The result shows that the factor loadings for the variables were satisfied, as all the variables met the threshold of 0.70 (Hair et al., 2019). The items for the scales were all retained. The reliability of the scales was also verified, as the Cronbach alpha and composite reliability result satisfied the scholarly threshold of 0.70 and above (Hair et al., 2019). This further confirms the reliability of the scale. Validity measurement result is also presented in Table 2. The average variance explained, which is used to measure convergent validity indicates values above the threshold of 0.50, thus, confirming the validity of the scales (Hair et al., 2019).
Measurement Model Result.
Franke and Sarstedt’s (2019) suggested that measuring discriminant validity, which is another major validity test that helps confirms the validity of a scale. We used heterotrait–monotrait ratio (HTMT) to assess discriminant validity. Coefficients higher than 0.85 should not be obtained for any of the scales. Table 3 represents the HTMT result and the result shows that this requirement was satisfied given that the values were not above 0.85. A 95% bootstrap-based confidence interval test showed the ratios were statistically different from 1, which further confirms discriminant validity of the model (Franke & Sarstedt’s, 2019).
Heterotrait–Monotrait Ratio (HTMT) Validity Result.
Structural Model
We assessed for multicollinearity using the variance inflation factor an in line with the recommendations of Hair et al. (2019), none of the items in the scale had a value above 5, as the highest was 2.961. The effect size confirms the influence of the predictors or omitting a predictor from the model, as for this study, the result confirms the effect size to be both medium and large effect for entrepreneurial finance and innovation capability respectively using Cohen (1988) of threshold of above 0.35 (large effect), 0.15 (medium effect) and 0.02 (small effect). In line with Chin (1998) criteria of 0.67 (substantial), 0.33 (moderate) and 0.19 (weak), we confirmed the coefficient of determination between the endogenous and endogenous variable using the squared multiple correlation (R2). The result in Table 4 shows a substantial change in organizational sustainability is explained by changes in the organizations innovation capability, as the R2 value is 0.662. However, a moderate change in organizational sustainability could be as a result of changes in the business’ entrepreneurial finance, as the R2 value is 0.469. The Q2 was used to account for the predictive relevance of the model, since the values for both sustainability and innovation capability were greater than 0, it then means the model has satisfied the criteria of predictive relevance and the model is relevant (Hair et al., 2019).
Summary of Hypothesis Test.
The significance of the paths was assessed using bootstrapping technique with 5,000 re-samples. T-values and the corresponding p-values were used to confirm path significance (see Figure 2). The path linking entrepreneurial finance and sustainability was confirmed significant given the t-value is greater than 1.96 (β = 0.204; p < .05); this means that H1 is accepted that entrepreneurial finance positively affects the sustainability of nascent firms. Also, the path showing the link between innovation capability and sustainability was also confirmed significant (β = 0.314; p < .05), this means H2 is accepted that innovation capability affects the sustainability of nascent firms. Finally, the path specifying the indirect effect of innovation capability on entrepreneurial finance and sustainability was also confirmed significant (β = 0.233; p < 0.05), thus, this implies that H4 is accepted that innovation capability mediates between entrepreneurial finance and sustainability of nascent firms. Standardized root mean square value of 0.069 was gotten, which implies the model is fit (Hair et al., 2020).
Hypothetical Model.
Hayes process macro was used to test H3 and the mediation-moderation model, which is H5. Model 14 was used to test for the moderated mediation of government support, innovation sustainability and organizational sustainability (Hayes, 2018). The summary of the result is presented in the Table 5. At 95% confidence interval, the number of bootstrapping used was 5,000 to determine the significance of the paths.
Hypotheses Result on the Moderation-Mediation Influence of Government Support Innovation Capability on Sustainability.
The path indicating the direct effect of government support on organizational sustainability was found to be significant (β = 0.3687, p < .05). This means that government support significantly affects the sustainability of nascent firms at 95% confidence interval. Hence, H3 is accepted that government support affects organizational sustainability of nascent firms in Nigeria. Further, the result revealed that despite the indirect effect of innovation capability on entrepreneurial finance and sustainability of nascent firms, government support does not significantly moderate the innovation capability (β = 0.0055, p > .05). Whether, a conditional moderated mediation effect occurred was determined using the index coefficient (Hayes, 2018). The bootstrap lower and upper confidence level was used and since zero falls between them, and it thus, means that we do not have a conditional statistically significant moderated mediation effect. Hence, the indirect effect of innovation capability is not moderated by government support.
Discussion Findings
The direct effect of entrepreneurial finance on sustainability, the indirect effect of innovation capability and the moderated mediation effect of government support on innovation capability on nascent firms’ sustainability was the central focus of this study. The study assumed that with the access to finance, nascent firms would better achieve their sustainability objectives, which often takes time for them when compared with large or medium size firms. We tested this proposition and others using sample from nascent firms in Nigeria.
The result from the study confirms that entrepreneurial finance positively affects the sustainability of nascent firms. This finding aligns with the study of Anwar et al. (2020) that found a positive link between entrepreneurial finance and new venture success. Similarly, the result affirms the study of Wasiuzzaman et al. (2020) that showed that firms with increased access to finance have better sustainable performance. The result supports the study of Khattak et al. (2021) who found that there exists a positive link between entrepreneurial finance and financial performance. Further, we have evidence that innovation capability affects the sustainability of nascent firms. This result aligns with the works of Hanaysha et al. (2022) that found a positive link between innovation capability and performance. Similarly, the result agrees with the works of Babarinde (2021) who also found that innovation affects firm’s sustainable advantage. Hence, it is necessary for nascent enterprises to develop their innovation capability, as it would help them achieve their sustainability objectives.
In addition, not so surprising our test revealed a significant direct effect of government support on organizational sustainability. The finding agrees with the works of Alkahtani et al. (2020) that also found government support to drive small businesses sustainable competitive performance. Similarly, Songling et al. (2018) findings are further strengthened with this study outcome. The analysis also revealed that the indirect effect of innovation capability on entrepreneurial finance and sustainability relation was also confirmed significant; thus, this implies that innovation capability mediates the relation between entrepreneurial finance and sustainability of nascent firms.
Surprisingly, the result revealed that despite confirming the indirect effect of innovation capability on entrepreneurial finance and sustainability of nascent firms and direct effect of government support on sustainability, government support was found not to significantly moderate innovation capability. Hence, the indirect effect of innovation capability is not moderated by government support. Otache and Usang (2022) and Choi et al. (2021) both found that government support moderates the link between innovation capability and SME performance. The difference in findings could be because Otache and Usang (2022) study was more focused on small and medium scale enterprises, while the current study is on nascent firms. The study of Choi et al. (2021) was carried out in a more developed economy, Korea when compared to Nigeria, where government relies heavily on external sources to fund its operations and have limited resources to offer start-ups.
Conclusions and Implication
This research addressed the sustainability challenges of nascent enterprises through a careful analysis of their financing sources, innovative capability and government support. Based on the outcome, we conclude that entrepreneurial finance, innovation capability and government support positively affect the sustainability of nascent firms. We also conclude that innovation capability mediates the relation between entrepreneurial finance and sustainability of nascent firms and finally, the indirect effect of innovation capability is not moderated by government support.
Theoretically, the study advances the resource dependence theory as lens that can be used to explore entrepreneurial finance and sustainability of nascent firms. The study advances an integrative model that explains a new perspective on government support as a weak driver to innovative capability, most especially when it is used as a mechanism to support entrepreneurial finance and sustainability relation. This remains a major contribution to literature. The study advances a new theoretical knowledge in literature, as it deepens scholarly knowledge on internal management variables and complimentary external mechanism that accounts for sustainability, most especially in nascent firms, which is not common in extant literature.
It is relevant that nascent entrepreneurs determine timely the appropriate finance required for their business and be specific about how to source them, most especially taking advantage of their internal and external financing options. This is important because the sustainability of their business is dependent on their access to finance and determining timely the finance needed and how to source them are fundamental entrepreneurial finance issues that is critical to them gaining sustainability. Nascent entrepreneurs are through this study encouraged to build mutually benefiting ties that would be instrumental to their long term sustenance, most especially with financial institutions. It is also timely that nascent entrepreneurs leverage on modern fintech platforms that provides funding source that are cheaper and easily accessible.
The study emphasizes the need for developing innovation capabilities, most especially specific capabilities such as technological, intelligence and knowledge that are required for early-stage businesses, as those will be useful towards ensuring improved sustainability. The innovative effort should be gradual and sector specific, as it will support the business irrespective of changes in its operating environment. Since most nascent businesses operate an owner-manager characterization of management, it is also useful that the managers develop their own personal capabilities (knowledge and self-efficacy), as it will support the process of developing innovative capability needs of the business, which would improve their sustainability.
Nevertheless, while innovative capability development is important, it is of utmost importance for nascent businesses to focus more on their financing option improvement through determining their appropriate finance needs, sourcing medium and effective utilization of the funds to drive improved sustainability. This is because innovative capability partially mediates entrepreneurial finance and sustainability relation. This study adds a new perspective to the entrepreneurial finance literature through advancing innovative capability as a mechanism through which nascent businesses determine their entrepreneurial financing needs in their focus to gain sustainability.
On the relevance of government support as a medium for gaining sustainability for nascent firms, this study advocates increased government support for nascent firms. The support can be financial and non-financial; however, it should be directed towards the specific need of the businesses. This study provides an empirical account of government support to nascent businesses, which is limited in the literature, as such, regulatory agencies of government must deploy their resources in such a manner that it offers specific holistic support proposal for the new born, small, medium and large scale businesses.
As a policy implication, government must end the adoption of generic approach in supporting businesses, as such, we call for a tailored specific policy for each stage of a business operations. This is because certain policies may be counterproductive to the innovative effort of businesses, most especially if they do not have the capacity to align appropriately with the policy changes. Businesses should be allowed to develop their innovative capability at their pace, as it will offer them the opportunity to learn, and experiences gained would be fundamental in gaining sustainability.
Limitations of the Study
Nascent entrepreneurs were the central focus of the current study, yet future studies could use large- and small-scale firms to verify the study outcome. The use of a single developing economy in sub-Saharan Africa is another limitation of the study. Future studies could take a larger scope covering and possibly comparing data from developed and developing economies. This will help enrich scholarly literature and present new perspectives on the study constructs. The difficulty in data collection in developing economies supported the use of a non-probability sampling technique, however, to mitigate the possible effect of the limitation, we ensured that the nascent entrepreneurs were not limited to a single sector and geographical location, most especially, because of the heterogenous nature of the Nigerian economy. Future studies could conduct a longitudinal survey that takes into cognisance a pre-establishment and the early stages, as the current study was concerned with businesses in the early stages alone. This is necessary because it would better highlight the varying challenges and circumstances that explains entrepreneurial finance at the pre-establishment and the early stages of the business. However, despite the identified limitations, this article makes theoretical relevance on entrepreneurial finance and organizational sustainability literature.
Footnotes
Acknowledgements
The authors are grateful to the anonymous referees of the journal for their extremely useful suggestions to improve the quality of the article. Usual disclaimers apply. We wish to acknowledge the management of Federal University Wukari for their support in undertaking this research.
Declaration of Conflicting Interests
The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
Funding
The authors received no financial support for the research, authorship and/or publication of this article.
