Not All Carrots—Some Sticks: The Impact of Overperformance Duration and Intensity on Firm Innovation

ABSTRACT While previous studies have acknowledged the importance of underperformance duration in organizational responses, few conceptual or empirical efforts have been made to explore how overperformance duration shapes innovation strategies over time. Drawing on the behavioral theory of the firm (BTOF), this study argues that overperformance duration has a U‐shaped relationship with exploratory innovation and an inverted U‐shaped relationship with exploitative innovation. Additionally, the intensity of overperformance is investigated as a moderator that amplifies both nonlinear relationships. Using firm‐level and patent data from 691 Chinese listed manufacturing firms between 2006 and 2018, empirical tests provide supporting evidence for these arguments. This study advances the current understanding of the BTOF by introducing and analyzing a temporal perspective on how positive performance deviations influence different types of innovation through performance feedback.