The Impact of Technological Diversification on Innovation Performance: The Moderating Effects From an Agency Perspective

In the rapidly advancing digital era, technological diversification (TD) emerges as a pivotal strategy to enhance firms' innovation performance. This study explores the nonlinear dynamics of TD and innovation performance, positing an inverted U-shaped relationship and examining the moderating effects of governance mechanisms—management shareholding, board size, board meeting frequency, and analyst coverage—from the perspectives of incentive mechanism design, internal control, and external regulation. Using a comprehensive panel dataset of 11,036 firm-year observations from 1438 Chinese listed manufacturers (2012–2020), we employ Tobit regression to validate our hypotheses. Our findings confirm the inverted U-shaped relationship between TD and innovation performance, which is significantly moderated by governance mechanisms that mitigate agency costs. The results withstand a battery of robustness checks and address endogeneity concerns. By integrating agency theory into the analysis of TD, this study provides a novel perspective and actionable strategies for firms to optimize TD within sustainable boundaries, ultimately achieving long-term innovation growth.