Institutional incentives and pressures in Chinese manufacturing firms’ innovation

Purpose: The purpose of this paper is to investigate how Chinese firms’ innovation is related to their perceived incentives and pressures from the transitioning institutional environment. Design/methodology/approach: A sample of 166 manufacturing firms located in Guangdong Province (China) is analyzed using binomial and moderated multiple regression models. Findings: The results show that institutional incentives are more effective in promoting incremental innovations than radical ones, whereas institutional pressures are more pronounced in facilitating radical innovations than incremental ones. In addition, the interaction between the two divergent institutional forces is negatively related to innovation performance. Practical implications: The findings inform managers and policy makers in institutional transition environments to consider and balance the effects of institutional forces. Firms should match the institutional incentives and pressures with their own innovation objectives in terms of incremental or radical goals, and take caution to deal with the divergent institutional directions, so as to avoid the negative interaction effects. Policy makers should take a systems approach when considering the incentive-based and/or command-and-control designs of innovation policies and regulations. Originality/value: The study contributes to existing literature on institutions and innovation by disentangling incentive and pressure effects of institutions, regulation and innovation policies, as well as the combined and interaction effects intrinsic within institutional mixes.