17946: Navigating Rough Waters: The Impact of U.S. Sanctions on Innovation Search Strategy of Chinese Firms (session 25961)

This study examines how U.S. sanctions on Chinese firms affect their innovation search strategy. Drawing on threat rigidity theory, we posit that targeted sanctions imposed by the U.S. government induce the threat rigidity responses within sanctioned Chinese firms. Consequently, these firms tend to adopt a defensive posture, prioritizing exploitative innovations over exploratory ones. We thus hypothesize a positive relationship between U.S. sanctions and sanctioned firms’ exploitative innovation search strategy. Moreover, we argue that this relationship is contingent on the levels of innovation pioneerism, technology hostage, and market hostage. Specifically, firms with higher levels of innovation pioneerism and lower levels of technology and market hostage will pursue a less exploitative innovation search strategy when subjected to sanctions. Evidence from a sample of 2,538 Chinese publicly listed firms from 2018 to 2022 supports our predictions. This study advances our understanding of threat rigidity theory by examining international sanctions as a novel form of external threat. It also provides a new perspective on how foreign governmental policies shape firms’ strategic decision-making.

view paper (if available)