An examination of the individual and interaction effect of absorptive capacity and corporate political activity on product innovation

ABSTRACT To improve their innovative performance in the emerging economy, firms develop absorptive capacity and corporate political activity to gain useful resources and maintain a beneficial environment. As the limited resources of firms and resource-consuming nature of absorptive capacity and corporate political activity, firms need to distribute resources wisely. However, the comparaion of their individual effect and the investigation of their interaction effect are limited. To fill up the research gap, based on the resource-based view, this study examined (1) the heterogeneous individual effect, and (2) the interaction effect of absorptive capacity and corporate political activity on innovation performance. Based on 165 pharmaceutical firms, this study found that the positive effect of absorptive capacity is stronger than that of corporate political activity on incremental innovation, while the positive effect of corporate political activity is stronger than the absorptive capacity on radical innovation. What’s more, the interaction effect is negatively related to radical innovation. These results shed light on how to conduct different innovations better by managing internal and external sources wisely, which extends the research of resource based innovation and enriches the study of the interaction effect of absorptive capacity and political strategy. This research also help managers to manage different resource sources based on their innovation strategy.