Three-dimensional institutional equivalence: how industry, community, and network peers influence corporate innovation quality in China

Purpose Innovation quality is a critical component of enterprise innovation. Prior research primarily focuses on company-level and external policy-level factors that affect innovation quality, while ignoring social-level factors. Based on institutional isomorphism theory, this study examines how the innovation quality of three-dimensional institutional equivalence, which is an important and unique reference group for firms to follow the “law of imitation of close preference”, affects the likelihood of firms' innovation quality. Design/methodology/approach This study conducts firm random effects and industry/year fixed effects models using China's listed companies from 2002 to 2021. Findings This study finds that compared with the innovation quality of its other industry, community, or network peers, the innovation quality of three-dimensional institutional equivalence has a greater impact on firm innovation quality. Furthermore, technological intensity significantly increases the effect of three-dimensional institutional equivalence on focal company innovation quality, while financing constraints significantly attenuate this effect. Additionally, when there is no institutional equivalent, the innovation quality of network, industry, and community peers has significant positive effects on enterprise innovation quality. Heterogeneity analysis also indicates that, under the conditions of non-state-owned enterprises, a low regional legal environment, or low regional factor market development, three-dimensional institutional equivalence contributes significantly to firm innovation quality. Research limitations/implications This study focuses on the effect of three-dimensional institutional equivalence on Chinese enterprises' innovation quality. Nonetheless, research samples from other countries are not considered in this study. Originality/value This study explores the impact of three-dimensional institutional equivalence on firm innovation quality within a systematic theoretical framework and incorporates firm attributes into this framework.