What shapes innovative firms’ performance? A multi-level analysis

Abstract

The industry organization theory in the early stage emphasizes the structure-conduct-performance (SCP) paradigm, indicating that industry characteristics and structure factors influence firm performance. Accompanied by technology development and the enhancement of innovation capabilities, the resource-based theory (RBT) has gradually attracted greater attention. Industry structure and competitive forces emphasize the role of external industrial environment factors in influencing a firm's strategic decision-making. Firms employ resources as their competitive advantage to adapt to the industrial environments and to shape the own performance.

This study uses hierarchical linear modeling (HLM) to integrate SCP and RBT and to analyze the different levels of effects on firm performance. The integrated theoretical framework suggests multi-level relationships between industry and firm dynamics. Specifically, industry-level factors include industry potential, scale, and dynamics that positively moderate firm-level competitive advantages (innovation resources, organizational resources, and slack resources) and firm performance. The research findings also reveal that industry competitiveness negatively moderates impacts on the relationship between firm competitive advantages and performance. The integration of both industry and firm competitive advantages shapes firm performance.