The impact of organizational culture on knowledge sharing and absorptive capacity: a study of the microfinance institutions in Pakistan

Abstract

Purpose

Microfinance institutions (MFI) must adapt to rapidly changing market conditions, including stringent regulations and diverse customer demands, necessitating a high absorptive capacity. This research elucidates how organizational culture promotes knowledge sharing, thereby enhancing an organization’s ability to absorb and utilize new knowledge, with particular attention to the moderating role of MFI size.

Design/methodology/approach

Data were collected from 450 randomly selected employees of MFIs in Pakistan. Hypotheses were tested using structural equation modeling in WarpPLS 8.0.

Findings

The findings show that knowledge sharing mediates the relationship between organizational culture and absorptive capacity. The impact is more pronounced in larger MFIs, while smaller MFIs exhibit greater agility in adapting to new knowledge.

Practical implications

MFIs, particularly in dynamic markets like Pakistan, should enhance their absorptive capacity by fostering an organizational culture that promotes knowledge sharing. While larger MFIs benefit from structured knowledge-sharing practices, they should address potential bureaucratic impediments to maintain agility.

Social implications

By improving absorptive capacity, MFIs can better innovate and tailor their services to underserved communities, contributing to financial inclusion and poverty alleviation in Pakistan. This research provides insights for policymakers and practitioners on fostering sustainable development through strategic organizational practices in MFIs.

Originality/value

The findings offer a practical framework linking theoretical concepts from the resource-based and knowledge-based views to real-world applications, particularly in developing economies. It emphasizes the crucial role of organizational culture in enabling MFIs to adapt and thrive in challenging environments.

Citation

Iqbal, S., Ullah, S., Rizwan, A., Nazeer, N., Rasheed, M. and Siddiqi, A.F.I. (2024), "The impact of organizational culture on knowledge sharing and absorptive capacity: a study of the microfinance institutions in Pakistan", South Asian Journal of Business Studies, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/SAJBS-01-2024-0038

1. Introduction

In today’s rapidly evolving business environment, companies must continuously adapt and innovate to maintain a competitive edge (Algarni et al., 2023). Microfinance Institutions (MFIs) operate within complex environments, often requiring innovative solutions to financial inclusion challenges. Absorptive capacity enables MFIs to develop products and services that align with the evolving needs of their customers by consistently absorbing and applying new knowledge and skills (Duan et al., 2021; Balle et al., 2020). A key aspect of absorptive capacity is the ability to recognize the value of new information, assimilate it, and apply it to commercial ends (Zhou et al., 2020). It is a crucial driver of innovation and a vital source of competitive advantage (Ahmad and Karim, 2019). However, the rapid changes in financial technologies and practices can overwhelm MFIs, particularly smaller ones with limited resources, hindering their ability to absorb and leverage new knowledge (De Haas et al., 2021). In Pakistan, where regulatory frameworks for MFIs are still evolving, frequent policy shifts generate uncertainty and hinder MFIs' capacity to devise long-term strategies around new knowledge and technologies (Bari et al., 2024). Additionally, MFIs in Pakistan often operate in rural areas where educational opportunities and professional training are not as readily accessible, affecting the overall absorptive capacity (Rokhim et al., 2023).

The literature on absorptive capacity originates from large corporations and developed economies (Zhou et al., 2020). There is a notable scarcity of empirical studies focusing specifically on MFIs, especially in developing countries like Pakistan, where socio-economic and cultural dynamics can significantly influence how knowledge is absorbed and utilized (Bari et al., 2024; Azeem et al., 2021). This research gap limits the applicability of existing findings to the unique challenges MFIs face in these regions. Moreover, in Pakistan, MFIs are pivotal in providing financial services to the unbanked and underserved populations (Bros et al., 2023). Understanding the factors that enhance their absorptive capacity can help these institutions innovate and expand their services, contributing to financial inclusion and poverty alleviation in Pakistan (Khowaja et al., 2021). There are gaps in understanding how organizational culture influences absorptive capacity and the mediating role of knowledge sharing in this relationship (Barjak and Heimsch, 2023; Fulgence et al., 2023). Thus, further research is essential to comprehensively understand the nuanced interplay of organizational culture, knowledge sharing, and absorptive capacity, particularly in varying organizational contexts (Balle et al., 2020; Hajro et al., 2017).

This study aims to bridge this gap by investigating how organizational culture affects knowledge sharing and, in turn, influences absorptive capacity. Organizational culture is a powerful determinant in shaping employees' perceptions, thoughts, and responses to their external environment (Sadeghi et al., 2023). An adaptable and open organizational culture encourages and rewards innovation, experimentation, and questioning of existing norms and practices (Azeem et al., 2021; Chión et al., 2020). The prevalence and success of communities of practice, responsiveness, and cooperation in teams often indicate a strong, cohesive culture that encourages collaboration and professional growth. When an organization’s culture actively supports and values cooperation, these principles become integral to its social fabric.

Knowledge sharing is the mechanism through which information flows within an organization (Boamah et al., 2023). An organizational culture that supports and encourages knowledge sharing creates an environment where information is freely exchanged (Halisah et al., 2021). This free flow of information is critical to developing absorptive capacity, allowing organizations to effectively acquire and assimilate new knowledge (Migdadi, 2022). By fostering a culture of knowledge sharing, MFIs can harness their staff’s collective expertise and experiences to develop more effective financial products and services precisely tailored to meet the unique needs of their clients (Ahmadi et al., 2022). MFIs rely heavily on their personnel’s ability to grasp and navigate the financial and social intricacies of serving underbanked or unbanked populations (Bari et al., 2024). A culture supportive of sharing knowledge simplifies building a collective knowledge base, facilitating innovation and adaptation (Chión et al., 2020; Sadeghi et al., 2023).

Knowledge sharing fosters synergy, where the collective knowledge of individuals sparks innovation and organizational learning (Rezaei et al., 2023; Nguyen et al., 2022). Yet, in many organizations, knowledge often becomes compartmentalized within departments or teams, creating silos (Hajro et al., 2017). In larger organizations, hierarchical structures may exacerbate these silos, impeding effective communication and knowledge sharing across different departments. Conversely, smaller organizations often benefit from flatter structures, promoting a more open, collaborative culture that facilitates more effective and free knowledge sharing. Choi et al. (2023) argue that a strong culture of knowledge sharing breaks down these barriers, ensuring that knowledge permeates throughout the organization. Zhou et al. (2020) maintain that cross-pollination of ideas is essential for developing a robust absorptive capacity, as it integrates diverse knowledge and perspectives. An organizational culture that values knowledge enhances a learning environment, bolstering innovation and competitiveness (Chiu et al., 2023; Choi et al., 2023).

Although organizational culture and knowledge-sharing have been explored and evaluated separately, the mediating effect of knowledge-sharing in the relationship between organizational culture (communities of practice, reciprocity, and coordination) and the absorptive capacity remains unexplored mainly (Ahmad and Karim, 2019; Ganguly et al., 2019; Arora et al., 2021). In Pakistan, MFIs face a volatile and unpredictable external environment (Bari et al., 2024). Factors such as variable literacy rates, economic instability, and diverse cultural practices significantly influence the efficacy of knowledge transfer and strategic adaptation within these institutions. Research predominantly focused on developed nations often fails to capture these unique contextual factors, challenging the universality of such findings. Addressing the lack of empirical evidence from developing countries like Pakistan could lead to a deeper, more precise understanding of the unique challenges and opportunities facing MFIs, aiding in developing more effective, contextually adapted strategies to enhance their impact and sustainability. This research addresses the following questions:

• (1)

  How does organizational culture influence absorptive capacity?

• (2)

  How does knowledge sharing mediate the relationship between organizational culture and absorptive capacity?

• (3)

  How does MFIs size moderate the relationship between organizational culture, knowledge sharing, and absorptive capacity?

2. Literature review

2.1 Theoretical background

The theoretical foundation of this study is built upon the resource-based view (RBV) and the knowledge-based view (KBV) theories, which posit that an organization’s competitiveness is fundamentally sustained by its knowledge assets (Pereira and Bamel, 2021). The RBV suggests that firms gain competitive advantages by possessing tangible and intangible resources, potentially transforming short-term advantages into sustainable long-term gains (Ullah et al., 2024; Furr and Eisenhardt, 2021). In contrast, KBV asserts that organizations are knowledge-creating entities, with strategic knowledge as their most significant resource (Stoian et al., 2024; Grant and Phene, 2022). This view underscores the role of firms in harnessing and applying organizational knowledge to enhance performance, with a significant emphasis on the role of employees in generating and transferring this knowledge through effective sharing mechanisms (Chowdhury et al., 2022). According to these two assumptions, the employees have an essential role in knowledge creation and transfer through knowledge sharing.

Stoian et al. (2024) suggest that the survival and success of any business depend essentially on knowledge. Purba et al. (2023) argued that knowledge is a strategic resource of an organization, and it has a specific criterion: it should be “valuable, rare, inimitable, and non-substitutable.” MFIs that use knowledge (existing and new) as a strategic factor increase their competitiveness in the long run (De Hass et al., 2021). Rezaei et al. (2023) and Migdadi (2022) suggest that knowledge-sharing influences absorptive capacity by facilitating the acquisition and assimilation of external knowledge. Xia and Li (2023) found that employees share their knowledge with others and learn from each other’s experiences and expertise.

Organizational culture significantly influences knowledge sharing by shaping the norms, values, and beliefs that guide employee behavior. Zhao et al. (2022) suggest that a culture that values collaboration, learning, and knowledge sharing encourages employees to share their knowledge. In contrast, a hierarchical, competitive, and individualistic culture may discourage knowledge sharing (Nguyen et al., 2022). Thus, by promoting a culture of knowledge sharing, firms can enhance their absorptive capacity and gain a competitive advantage by acquiring and assimilating external knowledge more effectively. The conceptual model based on RBV and KBV is presented in Figure 1.

2.2 Organizational culture and absorptive capacity

Organizational culture must continually evolve to achieve desired outcomes and foster innovative approaches, encouraging employees to align their thinking and actions with organizational goals (Sadeghi et al., 2023). Employees’ experiences are shaped by underlying values, which influence their actions (Azeem et al., 2021; Lei et al., 2021). Different facets of organizational culture impact absorptive capacity in varying ways (Teixeira et al., 2023).

When organizations foster communities of practice, encourage responsiveness, and promote cooperation among teams, they cultivate a culture that values learning, collaboration, and efficient teamwork. This enhances innovation, employee satisfaction, and overall organizational performance (Lau and Lo, 2019; Nicolini et al., 2022). Responsiveness, communities of practice, and cooperation among teams contribute to and reflect an organization’s underlying values (Schein, 2004; Wenger, 2009). These elements are reflective constructs of organizational culture because they emerge from and reinforce the cultural norms and values, creating a dynamic interplay between the organization’s structure and cultural identity (Choi et al., 2020).

Rokhim et al. (2023) suggest that communities of practice are formed of individuals within an organization who share common interests, expertise, and goals cut across formal hierarchical structures and departments, allowing for the exchange of knowledge and experience. These communities often emerge naturally as a part of the organizational culture and reflect it (Spicer, 2020). Ahmad and Karim (2019) found that communities of practice foster shared understanding, facilitating the integration of acquired knowledge into the organization’s structure. Similarly, Magni et al. (2022) argue that communities of practice in organizations foster a sense of belonging and provide a space for employees to engage in informal learning and problem-solving. The diverse perspectives and expertise found in communities of practice lead to transformative thinking (Nicolini et al., 2022). This transformation of knowledge is vital for creating novel solutions and ideas, enhancing the organization’s absorptive capacity (Arora et al., 2021; Boamah et al., 2023).

Moreover, responsiveness in organizational culture manifests the ability to react swiftly and effectively to changes in the external environment, customer needs, and internal demands (Choi et al., 2023). Responsiveness is rooted in an organization’s adaptive capacity, reflecting its culture (Xia and Li, 2023). Spicer (2020) suggests that organizations with cultures characterized by adaptability and openness are better positioned to implement rapid changes necessary for responding to market shifts and innovations. Utama et al. (2023) found that responsiveness increases the organization’s capacity to acquire external knowledge as employees actively seek and share information. Nguyen et al. (2022) and Arena et al. (2023) found that responsiveness in organizational culture encourages employees to apply knowledge gained from others' experiences. Employees experiment with new approaches and solutions, knowing their efforts will be appreciated and reciprocated, even if the results are not immediate, enhancing the organization’s absorptive capacity (Arora et al., 2021).

Cooperation among teams, characterized by collaborative work and mutual support among different units, also reflects organizational culture (Gutner, 2023). The degree to which cooperation is emphasized and effectively executed can indicate an organization’s cultural emphasis on teamwork and unity (Hajro et al., 2017). Cooperative cultures facilitate the integration of diverse ideas and foster an environment conducive to cross-functional teamwork (Spicer, 2020), which is crucial for organizational success in complex and dynamic industries. Brahm and Poblete (2024) suggest that an organizational culture of cooperation ensures that different parts of the organization work together seamlessly, reducing duplication of efforts and enhancing efficiency. Ali et al. (2020) found that cooperation facilitates identifying and acquiring relevant external knowledge by preventing silos and barriers that might hinder knowledge flow. From the RBV perspective, organizational culture is a strategic resource that affects how knowledge is managed and utilized within a firm to enhance its absorptive capacity (Furr and Eisenhardt, 2021). Therefore, it can be proposed that:

H1.

Organizational culture has a positive influence on the absorptive capacity of the organization

2.3 Mediating role of knowledge sharing

KBV posits that knowledge is an organization’s most critical strategic resource (Che et al., 2024). In MFIs, knowledge extends beyond financial transactions to understand clients’ socioeconomic environments, regulatory landscapes, and effective microfinance practices (Akter et al., 2021). Knowledge sharing enables MFIs to adjust their services and strategies in response to changing market demands and client needs (De Haas et al., 2021). KBV supports knowledge creation in the organization through individuals and groups and treats the internalization of that knowledge as critical (Stoian et al., 2024). An organizational culture that values and nurtures this knowledge supports its accumulation and refinement.

Organizational culture sets the tone for how employees interact, collaborate, and approach new information (Mahura and Birollo, 2021; Arena et al., 2023). The values, norms, behavior, and expectations established by the culture shape how employees acquire, share, leverage, and utilize knowledge (Halisah et al., 2021). It also determines whether employees will engage with external knowledge sources, challenge existing assumptions, and explore new ways of thinking (Azeem et al., 2021). Chión et al. (2020) and Mahura and Birollo (2021) suggest that organizational culture affects knowledge sharing through formal channels like meetings, training programs, informal interactions, and communities of practice. Organizational culture establishes the conditions for effective knowledge management and sharing (Antunes and Pinheiro, 2020). Halisah et al. (2021) found a positive effect of organizational culture on knowledge sharing.

KBV suggests that a firm’s ability to create, store, and utilize knowledge effectively is crucial to its success (Grant and Phene, 2022). In this process, knowledge sharing plays a pivotal role, particularly in recognizing the value of new information, assimilating it, and applying it to commercial ends (Zhou et al., 2020). Employees sharing and discussing acquired knowledge provides opportunities for diverse perspectives and interpretations (Abbas and Sağsan, 2019). This dynamic exchange promotes transforming external knowledge into innovative ideas as employees collectively work to integrate new insights with existing expertise (Barjak and Heimsch, 2023; Ullah et al., 2023). Herden (2020) found that employee collaboration and knowledge sharing lead to more comprehensive problem-solving and a higher likelihood of successfully exploiting external knowledge for competitive advantage. Chang et al. (2021) found that knowledge sharing is a mediating mechanism through which organizational culture influences the development and enhancement of absorptive capacity. Therefore, it can be proposed that:

H2a.

Organizational culture has a positive impact on knowledge sharing

H2b.

Knowledge sharing positively affects the absorptive capacity of the organization

H2c.

Knowledge sharing is a mediator for the relationship between organizational culture and the absorptive capacity of the organization

2.4 Size of MFI as moderator

The RBV theory recognizes organizational culture and knowledge as strategic resources contributing to a firm’s competitive positioning (Boamah et al., 2023; Carayannis et al., 2022; Furr and Eisenhardt, 2021). However, firm size can significantly influence how organizational culture affects knowledge-sharing behavior. MFIs in Pakistan range from small community-based organizations to much larger nationally operating entities (Bari et al., 2024). In larger MFIs, the diversity in operations and the complexity of managing a larger staff can dilute the strength of a unified organizational culture, potentially leading to less effective knowledge-sharing practices (Akter et al., 2021). However, larger MFIs might have more formalized structures and processes that could hinder or facilitate knowledge sharing, depending on how they are managed and the specific cultural elements promoted (Rokhim et al., 2023). On the other hand, KBV posits that smaller firms might naturally foster an environment where knowledge sharing is more fluid and spontaneous due to closer personal connections and a unified culture (Stoian et al., 2024). In smaller MFIs, the organizational culture is likely more closely knit, with employees often sharing a strong, unified mission to enhance financial inclusion (Chatterjee and Bhattacharjee, 2021). Therefore, understanding how firm size influences organizational culture and knowledge sharing can be crucial for improving the effectiveness of MFIs in Pakistan.

Moreover, the dynamic regulatory landscape and fluctuating market conditions where MFIs operate require a robust absorptive capacity to adapt and innovate swiftly (Fulgence et al., 2023). However, the effectiveness of knowledge sharing in enhancing absorptive capacity is contingent upon organization size (Duan et al., 2021). The larger MFIs benefit from more robust IT systems and organizational processes that facilitate effective knowledge dissemination, enhancing their ability to absorb and utilize new information (De Haas et al., 2021). Furthermore, larger MFIs may also have more established networks and relationships with external entities like banks, regulatory bodies, and international donors, providing them with access to a broader range of external knowledge and best practices that can be internalized to improve their operations and services (Bari et al., 2024). However, the bureaucratic hurdles potentially slow the assimilation and application of new knowledge in larger MFIs (Grant and Phene, 2022). Conversely, smaller MFIs often have fewer resources and less specialized knowledge management systems, which could limit the extent to which knowledge is shared and absorbed effectively (Akter et al., 2021). Within the RBV framework, MFI size acts as a moderator that can significantly influence the ability of MFIs in Pakistan to leverage employee knowledge-sharing behavior to enhance their absorptive capacity. Therefore, it can be proposed that:

H3a.

The size of MFI positively moderates the relationship between organizational culture and knowledge sharing

H3b.

The size of MFI negatively moderates the relationship between knowledge sharing and absorptive capacity.

3. Methodology

3.1 Sampling and data collection

MFIs have proliferated rapidly in Pakistan’s financial sector (Khowaja et al., 2021). Employees within these institutions are directly involved in day-to-day operations. They will likely have first-hand experience with the organizational culture, knowledge-sharing practices, and the institution’s absorptive capacity. Their insights are invaluable for understanding the internal dynamics of MFIs. This variability in employee responses at different designations enriches the data and contributes to a more nuanced understanding of the study’s focal constructs. Also, employees are a practical choice for data collection, as they are more accessible and likely to be responsive to research initiatives compared to external stakeholders or clients of MFIs. Therefore, individual employees of MFIs were selected as participants.

The study utilized a two-stage sampling approach, initially stratifying the population by location, followed by random selection within each stratum. In Stage 1, three cities (Lahore, Multan, and Rahim Yar Khan) representing Pakistan’s diverse geographical and economic contexts were selected. This stratification ensures that the sample captures a wide range of organizational cultures and practices within the microfinance sector across the country. In stage 2, within each city (stratum), 200 employees from various MFIs were randomly selected, helping to maintain proportional representation, and findings are not skewed by overrepresentation from a single city or MFI is crucial. In addition, this random sampling technique ensures that every employee within the selected MFIs has an equal chance of being included in the study. Random selection helps reduce selection bias, making the sample more representative of the population and increasing the generalizability of the findings.

Informed consent was obtained from all participants, ensuring they were aware of the study’s purpose and their rights. Measures were taken to guarantee anonymity and confidentiality, encouraging open and honest responses. The questionnaires were distributed to 600 employees, and 450 responses completed in all aspects were received, making the response rate 75%. In the sample, 71% were males and 29% were females. The age distribution was even, with 28% aged up to 25, 25% aged from 26–30 years, 21% aged 31–35, and 26% aged over 36. The respondents were well-educated, with 46% holding a Bachelor’s degree, 29% having a Master’s degree, and 25% with education less than Bachelors. The job experience of respondents varied from 43% with up to 3 years, 34% with 3–6 years, and 23% with more than 6 years’ experience.

3.2 Measurement

All questionnaire items were adapted from existing literature. The adaptation process involved consulting with MFI experts and conducting focus groups to ensure that the items were culturally and contextually appropriate for the Pakistani microfinance sector. Organizational culture was conceptualized as a second-order construct encompassing three dimensions: responsiveness, communities of practice, and cooperation among teams (Schein, 2004; Wenger, 2009). Six items measuring responsiveness were adapted from Bowen (2008), four items for cooperation among teams were adapted from Koster et al. (2007), and five items for communities of practice from Pyrko et al. (2017). Absorptive capacity was measured using ten items adapted from Lau and Lo (2019), chosen for their comprehensive coverage of the construct’s dimensions relevant to MFIs' ability to assimilate and apply new knowledge. Knowledge sharing was assessed with eight items adapted from Gillani et al. (2018), reflecting the practices and behaviors that facilitate knowledge exchange within MFIs. Using the State Bank of Pakistan classification, district-wide MFI minimum paid-up capital of Rs.300 million were treated as small, province-wide MFIs with minimum paid-up capital of Rs.500 million were treated as medium and nationwide MFIs minimum paid-up capital of Rs.1,000 million were treated as large (State Bank of Pakistan, 2023).

A pilot test was conducted with 30 MFI employees, selected to represent a diverse mix of positions and experiences within the sector. We collected feedback on respondents' understanding and interpretation of the items to enhance the adapted items' clarity, relevance, and appropriateness. Analysis of the pilot test results revealed Cronbach’s alpha values ranging from 0.74 to 0.92 for the different constructs, indicating good internal consistency. The confirmatory factor analysis loadings exceeded the 0.60 threshold (Hair et al., 2020). Based on feedback and the analysis, minor modifications were made to enhance the clarity of specific items.

4. Measurement model validation

4.1 Reliability and validity

The reliability and validity of the measurement model were assessed in the first step, followed by an evaluation of model fit diagnostics, and the direct and indirect effects of the specified model were assessed in the second step. The confirmatory factor analysis results indicated that the factor loadings were above the 0.60 cut-off value (Hair et al., 2020), confirming the validity of all statements for measuring the relevant constructs. Also, the values of average variance extracted (AVE) reported in Table 1 are more than the 0.50 cut-off value, proving the convergent validity of the model (Hair et al., 2020).

The discriminant validity of the constructs was tested using Fornell–Larcker estimates. The square root values of AVE reported diagonally in Table 1 were greater than the inter-construct correlations, confirming the discriminant validity of the model (Hair et al., 2020). The Cronbach’s alpha and composite reliability values presented in Table 1 are greater than the cut-off value of 0.7; therefore, the model is reliable. The value of Harman’s single-factor test used to estimate the common method bias (Podsakoff et al., 2003) was 0.35; therefore, no single factor is responsible for explaining more than 50% covariance among variables.

4.2 Diagnostics

Before interpreting the results of structural equation modeling, assessing the goodness-of-fit diagnostics related to multicollinearity, endogeneity, homoscedasticity, reverse causality, and the model’s explanatory power is essential. The values for the average path coefficient (APC), average R-squared (ARS), and average adjusted R-squared (AARS) were statistically significant, indicating that the latent variables added to the model significantly explain the variation in dependent variables (Kock, 2011). The average block variance inflation factor (AVIF) measures the vertical collinearity in the model. In contrast, the average full variance inflation factor (AFVIF) measures the model’s full collinearity, also called multicollinearity (Kock and Lynn, 2012). The value of AVIF and AFVIF are less than the cut-off value of 3.3; therefore, there is no multicollinearity in the latent variables used in this model.

The GoF index, referred to as “Tenenhaus GoF” in honor of Michel Tenenhaus, is calculated as the square root of the product between the average communality index and the ARS (Tenenhaus et al., 2005). It estimates the model’s explanatory power (Kock, 2015). A GoF value of 0.423 indicates the high explanatory power of the specified model. The value of the Breusch-Pagan test is insignificant, confirming no heteroscedasticity in the model. The nonlinear bivariate causality direction ratio (NLBCDR) estimates the likelihood of bivariate nonlinear causality in the hypothesized relationships (Kock, 2021). The value of NLBCDR is above the cut-off value of 0.7; therefore, the likelihood of reverse causality in the hypothesized relationships is extremely low, supporting the proposed causality in the relationships. All assumptions are satisfied; thus, the model fits well with the data, and further analysis is unbiased.

5. Results

Structural equation modeling using WarpPLS 8.0 was employed to test the hypotheses. Table 2 reports the results of the path analysis used to test the proposed hypotheses in step two. Organizational culture significantly affects absorptive capacity, with a β value of 0.408***, supporting H1. It indicates that a supportive organizational culture can significantly enhance an MFI’s ability to absorb and utilize new knowledge (Migdadi, 2022; Magni et al., 2022). The significant positive effect of organizational culture on knowledge sharing, with a β value of 0.426**, suggests that a strong organizational culture facilitates sharing knowledge among employees, supporting H2a. Similarly, knowledge sharing positively affects absorptive capacity with a β value of 0.485**, supporting H2b. It reinforces that effective knowledge sharing is crucial for enhancing an organization’s capacity to absorb new information. The indirect effect of Organizational Culture → Knowledge Sharing → Absorptive Capacity with β value of 0.207*** highlights the importance of nurturing a culture that supports knowledge sharing to boost absorptive capacity, supporting H2c.

The moderating effect of MFI size amplifies the impact of organizational culture on knowledge sharing, with a β value of 0.228***, supporting H3a. Conversely, there is a significant negative moderating effect of MFI size on the impact of knowledge sharing on absorptive capacity, with a β value of −0.197***, supporting H3b. This suggests that as MFI size increases, the positive impact of knowledge sharing on absorptive capacity may diminish, possibly due to challenges such as coordination and communication inefficiencies in larger organizations.

6. Discussion

The findings of this study align with those of Azeem et al. (2021) and Migdadi (2022), which underscore the importance of a supportive organizational culture in fostering knowledge sharing and enhancing absorptive capacity. Similarly, Xia and Li (2023) highlighted the dynamics of employee interaction in knowledge sharing; this study confirms that organizational culture significantly influences knowledge exchange and absorptive capabilities within MFIs. The findings align with the theoretical underpinnings that an organization’s culture, emphasizing openness, collaboration, and knowledge exchange, enhances its ability to assimilate and apply new knowledge effectively (Hajro et al., 2017; Piao and Moon, 2019; Utama et al., 2023; Gutner, 2023).

The significant mediating effect of knowledge-sharing as a pivotal mechanism through which organizational culture influences absorptive capacity corroborates the findings of Sadeghi et al. (2023) and Zhou et al. (2020). Thus, knowledge sharing should be a cultural value that enhances organizational learning and innovation capabilities (Choi et al., 2023; Rezaei et al., 2023; Halisah et al., 2021; Barjak and Heimsch, 2023). It is particularly relevant for Pakistani MFIs, where frequent policy shifts and uncertain regulatory environments necessitate a robust absorptive capacity to adapt and innovate swiftly (Bari et al., 2024).

A unique aspect of this study is the focus on the size of the MFI as a moderating factor. The findings show that while larger MFIs benefit from structured knowledge-sharing practices, they also face bureaucratic challenges that may hinder the rapid application of new knowledge, supporting the findings of De Haas et al. (2021). It means that as MFI size increases, the positive impact of organizational culture on knowledge sharing becomes more pronounced. This finding aligns with the literature suggesting that larger MFIs in Pakistan may have more resources and structures in place to foster a culture that supports and encourages knowledge sharing, enhancing their ability to innovate and respond to market demands (Sadeghi et al., 2023; Yu et al., 2022; Pereira and Bamel, 2021). It contrasts with smaller MFIs, which, due to their agility, might overcome these challenges more effectively, as noted by Ahmad and Karim (2019).

Conversely, the negative impact on the path from knowledge sharing to absorptive capacity (β = −0.197***) implies that while larger MFIs are better at facilitating knowledge sharing, they face challenges in translating this shared knowledge into absorptive capacity, aligning with the notion that larger organizations may be less agile in adapting to new knowledge (Chiu et al., 2023; Grant and Phene, 2022). This insight complements and extends the literature by demonstrating that MFI size is a critical factor that can influence the effectiveness of organizational strategies to foster knowledge sharing and enhance absorptive capacity. It suggests that while fostering a culture of knowledge sharing is crucial, MFIs must also consider their size and structure when designing and implementing strategies to maximize their absorptive capacity.

7. Conclusion

This study contributes to the literature from a theoretical perspective grounded in RBV and KBV theories. Organizational culture is crucial in establishing knowledge-sharing practices that enhance absorptive capacity, fostering competitive advantages. Cultural barriers that inhibit employees from sharing their knowledge within the organization should be eradicated through effective policymaking and a shift in organizational culture. When employees gain more confidence in responsiveness, communities of practice, and cooperation, a knowledge-sharing culture will prevail, and essential information and insights will be gained to increase absorptive capacity. Knowledge sharing is essential for fostering innovation and creativity among employees. Organizations seeking to refine their management strategies must address human, organizational, and technological barriers that impede knowledge sharing (Friedrich et al., 2020). Eliminating these barriers can provide a competitive advantage. Furthermore, a robust knowledge management capacity can lead to increased inspiration, innovative ideas, and enhanced organizational competence. Organizations should continuously develop and sustain a knowledge-sharing culture to achieve and maintain high absorptive capacity. Knowledge sharing is a means for the organization’s absorptive capacity; in the long run, it can become a source of competitive advantage and continuous improvement.

8. Implications

Traditionally, RBV’s focus on tangible resources suggests that organizations can gain a competitive advantage by effectively and efficiently managing these resources (Purba et al., 2023; Furr and Eisenhardt, 2021). However, this study underscores the significance of intangible assets, specifically organizational culture and knowledge sharing. Intangible resources like culture, often considered nebulous and peripheral in resource-based strategies, can be a central, actionable asset in enhancing a firm’s ability to acquire, assimilate, transform, and exploit knowledge. Therefore, culture is not just a passive backdrop but an active enabler of knowledge processes (Hajro et al., 2017). Similarly, the knowledge-based view emphasizes the role of knowledge as a critical organizational resource (Stoian et al., 2024; Grant and Phene, 2022). The findings imply that absorptive capacity is not just an inherent organizational trait but can be cultivated through specific cultural and knowledge-sharing practices (Zhao et al., 2021; Sadeghi et al., 2023; Teixeira et al., 2023).

These findings advocate for implementing policies and practices that encourage employee knowledge-sharing behavior. This includes developing norms and values that promote collaboration, openness, and the exchange of ideas (Ali et al., 2020). A culture characterized by trust, open communication, and a collaborative spirit facilitates the free flow of ideas and information and ensures that these are effectively assimilated and applied, thereby enhancing the organization’s absorptive capacity (Algarni et al., 2023; Magni et al., 2022). It is essential to develop training programs emphasizing the value of knowledge exchange and the skills necessary to engage in effective knowledge-sharing practices (Xia and Li, 2023). Performance evaluation and reward systems can also be aligned to recognize and incentivize knowledge-sharing activities (Fischer, 2022).

Lastly, MFIs in Pakistan primarily target the underserved segment, providing small loans, savings opportunities, and other financial services to individuals and small businesses that do not qualify for standard bank loans (Bari et al., 2024). Many MFIs in Pakistan focus on rural and semi-urban areas, where access to financial services is limited (Bros et al., 2023). The State Bank of Pakistan regulates MFIs, which must navigate complex regulations that can impact their operations, product offerings, and expansion plans (Bari et al., 2024). This study offers a framework for MFIs to remain adaptable in the face of rapidly changing market conditions typical of developing countries. The findings present absorptive capacity as a strategic asset for MFIs in developing countries to swiftly respond to new regulatory requirements, technological advancements, and shifting customer preferences, ensuring long-term sustainability and growth. Managers can use these insights to prioritize investments in training and development programs that enhance employees' abilities to recognize, assimilate, and apply new knowledge (Carayannis et al., 2022). Managers can advocate for and implement policies that reward knowledge sharing and innovation, thus embedding these practices into the organizational DNA. It can lead to the development of innovative financial products and services tailored to the evolving needs of their customers.

9. Future research directions

The study is concentrated in Pakistan, specifically in three cities. This geographic focus limits the generalizability of the findings to other regions or countries with different economic, cultural, and regulatory environments. The focus on MFIs may only partially capture the organizational culture, knowledge sharing, and absorptive capacity dynamics in other sectors, particularly those with different operational models and customer bases. Future research should explore these relationships across different cultural contexts and in various countries to enhance the generalizability of the findings and understand the impact of cultural norms on organizational behavior. Investigating these relationships in other sectors could uncover unique industry-specific challenges and opportunities for enhancing absorptive capacity and competitive advantage through knowledge sharing.

Figures

Figure 1

Conceptual model of the study

Table 1

Estimates for discriminant validity and convergent validity

Variable	Mean	SD	CA	CR	AVE	OC	KS	AC
OC	4.11	0.88	0.80	0.84	0.56	0.748
KS	3.98	0.72	0.88	0.90	0.54	0.222	0.740
AC	4.29	0.91	0.86	0.89	0.55	0.548	0.561	0.732

Note(s): Organizational Culture = OC, Knowledge Sharing = KS, Absorptive Capacity = AC, Standard Deviation = SD, Cronbach’s Alpha = CA, Composite Reliability = CR

Source(s): Authors’ own work

Table 2

SEM estimates for hypothesis testing

Hypothesis	Path	β value
H1	Organizational Culture → Absorptive Capacity	0.408***
H2a	Organizational Culture → Knowledge Sharing	0.426**
H2b	Knowledge Sharing → Absorptive Capacity	0.485**
H2c	Organizational Culture → Knowledge Sharing → Absorptive Capacity	0.207***
H3a	Organizational Culture*MFI Size → Knowledge Sharing	0.228***
H3b	Knowledge Sharing*MFI Size → Absorptive Capacity	−0.197***

Source(s): Authors’ own work

Questionnaire items

Absorptive capacity

• (1)

  My organization frequently interacts with its head office to acquire new knowledge.

• (2)

  My organization’s employees regularly visit other branches.

• (3)

  My organization periodically organizes meetings with customers or third parties to acquire new knowledge.

• (4)

  New opportunities to serve our clients are quickly understood.

• (5)

  My organization quickly analyses and interprets changing market demands.

• (6)

  My organization regularly considers the consequences of changing market demands regarding new products.

• (7)

  Employees record and store newly acquired knowledge for future reference.

• (8)

  My organization constantly considers how to exploit knowledge better.

• (9)

  My organization has a clear division of roles and responsibilities

• (10)

  It is clear how activities within my organization should be performed.

Knowledge sharing

• (1)

  In my organization, sharing knowledge with colleagues is a routine matter

• (2)

  I have contributed knowledge to this organization

• (3)

  Employees can freely access the majority of documents and information in this organization.

• (4)

  I have tried to share my knowledge and expertise with colleagues more effectively.

• (5)

  I have contributed knowledge to other members, resulting in developing new insights.

• (6)

  Employees share knowledge and know-how freely with each other.

• (7)

  My department encourages employee recommendations and the exchange of experience with other departments for the betterment of the organization.

• (8)

  Knowledge and experience have been exchanged between different departments on different occasions.

Organizational culture

Responsiveness

• (1)

  When challenges arise in our work, we can count on a prompt response from the management.

• (2)

  My organization quickly adapts to changes in the market or industry.

• (3)

  I receive timely feedback on my work performance from my supervisors.

• (4)

  My organization provides quick solutions to customer complaints.

• (5)

  Decisions are made swiftly within our team to address urgent issues.

• (6)

  There is a system in place for rapid communication in urgent situations.

Communities of practice

• (1)

  Knowledge is effectively shared across different teams in my organization.

• (2)

  Collaborative learning is well integrated into our organizational structure.

• (3)

  The insights gained from collaborative learning activities are regularly implemented into our work processes.

• (4)

  Participating in organizational initiatives has significantly improved my professional skills.

• (5)

  Employees are actively encouraged to join and participate in various learning groups or initiatives.

Cooperation among teams

• (1)

  Teams within our organization share resources effectively.

• (2)

  There is open and effective communication between different teams.

• (3)

  Joint efforts among teams are encouraged and supported by management.

• (4)

  There is a mutual understanding of goals between teams in our organization.