Performance Surplus Inconsistency and Firm Innovation: Evidence From China

Abstract

Performance surplus plays a crucial role in driving firm innovation. This study, grounded in self-enhancement theory and behavioral research, proposed a research model on how firm innovation is affected by performance surplus inconsistency, which refers to discrepancies in historical and social performance surpluses. Using panel data from 1415 publicly listed Chinese manufacturing companies spanning 2007 to 2019, we applied polynomial regression and response surface analysis to test our research model. Polynomial regression allowed us to examine how multiple independent variables simultaneously influence the outcome, while response surface analysis used the regression coefficients to further evaluate and visually represent how inconsistent combinations of these variables impact the outcome. Our findings reveal that performance surplus inconsistency positively influences research and development (R&D) intensity. Firms that exhibit a combination of low historical performance surplus and high social performance surplus demonstrate higher levels of R&D intensity compared with those with the reverse combination (high historical performance surplus and low social performance surplus). We also find that government subsidies enhance the positive effect of performance surplus inconsistency on R&D intensity. By emphasizing the role of performance surplus inconsistency in driving firm innovation, this study offers a multireference perspective to explore innovation in high-performing firms. It contributes to ongoing discussions on performance surplus and firm innovation, offering valuable insights for managers and policymakers to promote innovation.