How upstream innovativeness of ecosystems affects firms' innovation: The contingent role of absorptive capacity and upstream dependence

This study attempts to examine how upstream innovativeness affects firm innovation, as well as the contingent role of absorptive capacity and upstream dependence associated with the effects of upstream innovativeness. Specifically, based on an empirical study of a set of panel data of Chinese listed firms in the manufacturing sector of the Growth Enterprise Board from 2012 to 2017, this paper shows that upstream innovativeness has a positive effect on firms' innovation performance and that the effect of upstream innovativeness is positively moderated by firms' absorptive capacity. Moreover, the positive moderating role of absorptive capacity will be strengthened when upstream dependence increases. The findings indicate that higher absorptive capacity enables firms to better understand, assimilate and exploit upstream innovative components, and that higher upstream dependence could increase firms' willingness to invest in ecosystem actor-specific absorptive capacity and utilize such capability, thereby enabling a firm to better recognize, assimilate, and exploit external knowledge from the specific upstream actors. Thus, we build a new framework related to how firms' response to ecosystem upstream innovativeness by increasing their innovation based on their capability and willingness.