How Firm`s Dealing With the Dual-Forces in China`s Mid-Range Economy Affect Innovation Performance

Abstract

This article interprets how firms` reactions to the dual (institutional and market) influential forces in China`s mid-range economy would together determine their innovation performance. In particular, this article investigates the curvilinear effects of the benefits (formal institutional capital and informal institutional capital) firms obtained from their reacting to the institutional voids on innovation performance, and examines how firms` reacting to the market influences (exploratory market learning and exploitative market learning) would moderate the relationships between institutional capital and innovation performance. Based on the multiple informant responses of 303 firms in China, we find that formal institutional capital has a U-shaped effect on innovation performance, while informal institutional capital has an inverted U- shaped effect on innovation performance. Exploratory market learning would sharpen the U-shaped/inverted U-shaped effects of formal institutional capital/informal institutional capital on innovation performance, while exploitative market learning would weaken the inverted U-shaped effects of informal institutional capital on innovation performance.