Abstract: Due to multiple factors such as the COVID-19 pandemic, weakened expectations, and geopolitical conflicts, an increasing number of firms are experiencing organizational decline. Innovation is not only a key driver of the upgrading and high-quality development of Chinese manufacturing firms, but also an important means of reversing declining performance. However, in the face of decline, firms exhibit considerable heterogeneity in their innovation activities. This study utilizes panel data from Chinese listed manufacturing firms from 2013 to 2020 and employs hierarchical regression analysis and Bootstrap methods to examine the mechanisms of how organizational decline influences innovation activities, as well as the moderating role of slack resources. The results indicate that organizational decline does not directly promote innovation activities; rather, it influences them by altering firms’ risk preferences. Risk-taking fully mediates the effect of organizational decline on innovation activities, and this mediating effect is contingent upon the firm’s slack resources. Specifically, slack resources play a dual-path moderating role in the mediating effect of risk-taking: on the one hand, they weaken the positive impact of organizational decline on risk-taking, while on the other hand, they enhance the positive effect of risk-taking on innovation activities. These findings provide practical insights for the innovation recovery of declining firms facing the dual challenges of resource reduction and eroding organizational legitimacy.

Key words: declining firms, slack resources, innovation activities, risk-taking