Public Sector Markets and Firm Innovation

Existing studies on the impact of government on firm innovation have examined policies, state ownership, and political connections, but they have not examined firm strategies that intentionally pursue government resources. We draw from institutional theory to argue that strategically selecting the public sector as a target market hampers innovation and we draw from imprinting theory to argue that founders' embeddedness in the institutional environment amplifies this relationship. We tested our hypotheses on a dataset of 409 private firms in Chinese high-tech industries and found that targeting the public sector negatively affects innovation performance. This relationship is stronger for firms that are more confident in their target markets and that have a founding team endowed with more prior experience in domestic management and domestic elite education. The results contribute to our understanding of how strategically relying on government resources affects innovation, leading us to contend that such strategies are important considerations in strategy management.