Technological diversification and innovation performance: ownership structure

Purpose This study explores the contingent relationship between technological diversification (TD) and innovation performance, particularly in the context of China’s high-tech firms. It aims to understand how the structure of firm ownership influences the allocation of innovation resources and, consequently, the efficiency of innovation activities. Design/methodology/approach The research employs a fixed-effect regression model to analyze a unique panel dataset of 1,139 Chinese listed high-tech firms over a nine-year period. The dataset includes firm-year observations from 19 industries, allowing for a comprehensive analysis of the relationships between TD, innovation performance and ownership structure. Findings This study finds an inverted U-shaped relationship between TD and innovation performance, indicating that while a certain level of TD can enhance innovation performance, excessive diversification can lead to diminishing returns. The findings also reveal that ownership concentration amplifies this relationship, suggesting that firms with more concentrated ownership structures can quickly reach optimal levels of innovation performance but are also more susceptible to the “over-diversification trap.” In contrast, equity restriction and ownership type (state-owned vs privately owned enterprises) moderate the relationship, indicating that firms with these structures may maintain optimal innovation performance levels for longer periods. Originality/value This research provides novel insights by confirming a nonlinear, inverted U-shaped relationship between TD and innovation performance, specifically within the context of Chinese high-tech firms. By integrating corporate governance theory, our study advances understanding of how ownership structure – through ownership concentration, equity restriction and ownership type – moderates the TD-innovation performance relationship. This perspective offers a deeper understanding of resource allocation and innovation efficiency in emerging markets. The findings hold practical implications for managers and policymakers, underscoring the importance of aligning TD strategies with firm ownership structures to optimize innovation outcomes.