Re-Innovation from Failure, Institutional Environmental Differences, and Firm Performance: Evidence from China

Due to an anti-failure bias, theoretical and practical studies have not focused much on theproblem of innovation failure. The literature does not include studies on how the effect ofre-innovation input on firm performance can still be explained by existing theories,especially in the case of previous innovation failures. To explore the intrinsic relationshipbetween the re-innovation from failure and firm performance, as well as the influencingmechanism of the institutional environment differences on a firm’s re-innovation activities,using the data of the Listed Companies in China’s pharmaceutical manufacturing industryfrom 2008 to 2014 and a multiple regression model, the relationships between the reinnovationfrom failure, institutional environment differences, and firm performance wereanalyzed from 3 aspects: government intervention, financial development, and legalenvironment. The results show that the re-innovation input from failure has a significantpositive impact on firm performance. The level of government intervention and the level offinancial development play significant negative and positive moderating roles in therelationship between the re-innovation input and firm performance, respectively, and theabove-mentioned effects are more prominent in eastern China. Moreover, with theimprovement of the marketization of the financial industry, the beneficial effect of the reinnovationinput from failure on firm performance in state-owned firms will be furtherstrengthened. However, the moderating effect of the legal environment is not obvious.