Abstract
Despite considerable scholarly attention to uncertainty management in entrepreneurship, it remains unclear how entrepreneurs’ perceived environmental uncertainty shapes entrepreneurial actions in their firms, such as innovation. A positive view interprets innovation as an entrepreneurial action to manage uncertainty, thus suggesting a positive effect; while a negative view sees uncertainty as an obstacle to innovation, thereby proposing a negative effect. We reconcile this tension based on the typology of perceived environmental uncertainty (PEU)—state, effect, and response uncertainty, differentiating the implications of distinct types of uncertainty perceived by entrepreneurs. We posit that state and effect uncertainty perceived by entrepreneurs encourages innovation, whereby the positive influence of state uncertainty is stronger than that of effect uncertainty. In contrast, response uncertainty perceived by entrepreneurs discourages innovation. Using hand-collected multiple-wave multiple-informant survey data on 146 small firms in Malaysia, we show evidence for most of our arguments. We further enrich our evidence by exploring the interactive effects of three types of PEU and the boundary conditions derived from entrepreneurs’ characteristics. Our study disentangles the distinct impacts of three types of uncertainty, thereby advancing a more fine-grained understanding of uncertainty management in entrepreneurship.