The mediation effect of innovation in the relationship between external knowledge and firm performance in Africa

Abstract

The purpose of this research is to explore empirically the mediation effect of firm innovation on the relationship between external knowledge and firm performance. Using cross-sectional data from the World Bank Enterprise Survey in ten sub-Saharan African (SSA) countries, a range of analysis was conducted to test for the mediation effect. We used Baron and Kenny's (1986) triple test for mediation to understand the nature of mediation and the product of the coefficient approach to compute three different mediation tests (the Sobel test and the Aroian and Goodman tests) including the bootstrapping confidence interval. The result confirms innovation mediates the relationship between external advice and firm performance. The study contributes to the limited literature on the mechanism through which external knowledge could positively influence firm performance, especially in a developing country context (Africa) where existing literature has focused more on how external knowledge influences firm innovation.