Declining Organization Turnaround: Substantive Innovation or Strategic Innovation?

Abstract

Abstract: The academic circle has not reached a unified conclusion on whether innovation can help declining organizations realize value reconstruction. This paper takes the substantive innovation and strategic innovation in emerging markets as the analysis unit, re-examines the influence of innovation on the value reconstruction of declining organizations, and discusses their differential impact on the value reconstruction of declining organizations. This paper further integrates the institutional theory, and incorporates three institutional factors (local policy uncertainty, local government support and the nature of enterprise property rights) into the research framework to construct a contingency model for declining organizations. Based on the panel data of 934 Chinese listed companies that are in organizational decline from 2007 to 2018, this paper mainly draws the following conclusions: (1) Both the substantive innovation and strategic innovation have a positive effect on value reconstruction of declining organizations, and substantive innovation contributes more to it; (2) Local policy uncertainty weakened the positive effect of substantive innovation and strategic innovation on value reconstruction of declining organizations; (3) Local government support strengthened the positive effect of substantive innovation and strategic innovation on value reconstruction of declining organizations; and (4) The increase of private capital involvement further promoted the positive effect of substantive innovation and strategic innovation on value reconstruction of declining organizations. Based on the essential characteristics of innovation mechanism in China's emerging markets, this paper re-examines the complex mechanism of how substantive innovation and strategic innovation influence firms' value reconstruction, and reveals the boundary conditions of the impact of innovation on value reconstruction of declining organizations, thus having practical significance for guiding declining organizations on how to achieve the goal of value reconstruction.

Key words: declining organizations, substantive innovation, strategic innovation, value reconstruction, institutional context

Yan Jingbo, He Xiaogang, Chen Yuan, Yang Chan. Declining Organization Turnaround: Substantive Innovation or Strategic Innovation?[J]. Management Review, 2023, 35(6): 92-110.

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