While technological standardization is often hailed for its strategic benefits, such as knowledge acquisition, market power, and competitive advantage, it can also present significant risks to innovation. This study explores the dual nature of standardization participation by examining its effects on both exploitative and exploratory innovation. Drawing on the path dependence framework, we propose that standardization tends to promote exploitative innovation—improving existing technologies—but simultaneously limits exploratory innovation by constraining firms to established technological paths. This trade-off becomes more pronounced in environments with strong legal enforcement, where firms are further encouraged to stick to their established capabilities. However, we argue that political connections can alleviate these constraints by enabling firms to access diverse sources of knowledge, thereby encouraging technological exploration. Using data from 486 Chinese manufacturing firms between 2011 and 2020, we test these hypotheses with a series of robust empirical analyses, including a Difference-in-Differences approach leveraging a policy shock and 11,167 firm-year observations. This research provides important insights into the strategic implications of standardization and its complex relationship with innovation performance.
