The peer contagion effects and firms' innovation: Evidence from China

Abstract The existing researches on firms' innovation ignore the influence of peer firms; thus, this paper empirically examines the peer contagion effects of firms' innovation in China. The results indicate firms' innovation is significantly influenced by peers, and the macro‐marketization and meso‐industry competition promote the effects, whereas the micro firm managerial ability inhibits them. The study also finds the influence mechanism in breakthrough innovation and incremental innovation is different. Further prioritization tests reveal marketization, and industry competition prioritizes the effects over managerial ability. Our conclusions enrich literature on peer contagion effects, factors influencing innovation, and dual innovation theory.