Absorptive capacity in a more (or less) absorptive environment: A meta-analysis of contextual effects on firm innovation

Abstract

The effects of the knowledge environment on a firm's ability to acquire, assimilate, transform, and utilize new knowledge—its absorptive capacity (AC)—to produce innovation (INN) have been largely overlooked in prior literature. Drawing on the knowledge spillover theory of entrepreneurship, we conduct a meta-analysis summarizing findings from 145 empirical studies on 434,985 firms with 798,650 firm-year observations. We distinguish between knowledge-rich environments with abundant, easily accessible information; knowledge-protected environments with high levels of intellectual property rights protection; and knowledge-intensive environments with high levels of reliance on knowledge. Our study assesses the impact of the environment on the AC–INN relationship. First, we confirm that knowledge-rich environments create more opportunities to reap innovation benefits from AC compared to knowledge-scarce environments. Driven by the development of communication technologies and increased information sharing, the effects of AC on innovation are almost twice larger in the smartphone era as they were during the preinternet or early internet era. Second, our analysis indicates that high levels of knowledge protection, as seen in North America and Europe, while safeguarding intellectual property, also dampen positive effects of absorptive capacity on innovation. In environments with less knowledge protection, the effects of AC on innovation are stronger. Finally, our findings suggest that AC is beneficial across industry sectors, but its effects are stronger in less knowledge-intensive sectors. The mean effect size in low-tech manufacturing and services is two times larger than in high-tech industries. Beyond contextual effects, we assess AC's effects on two major creativity outputs: invention, as a breakthrough scientific discovery, and commercialization, as a socially usable and marketable product. Our findings show that AC overall boosts innovation and is more strongly associated with commercialization than with invention. The implications of this study aim to inform practitioners and policymakers and advance future research on knowledge environments.