The escalating Sino-US trade tensions have increased the degree of environmental uncertainty faced by firms; however, the impact of such uncertainty on exploratory innovation remains understudied. Drawing on real options theory, we investigate how firms' perceptions of Sino-US trade uncertainty influence their exploratory innovation and how this relationship is moderated by individual-, firm-, and industry-level contingencies (i.e., top management teams with R&D backgrounds, financial slack, and industrial competition). Analysing a panel dataset of 1,119 Chinese listed manufacturing firms from 2014 to 2020, we observe a negative association between firms' perceptions of Sino-US trade uncertainty and their exploratory innovation. This negative effect is mitigated if firms possess a higher proportion of top management team members with R&D backgrounds or ample financial slack, or if industrial competition is intense. These findings deepen our understanding of firms' innovative activities in uncertain environments.
Cai et al. (Wed,) studied this question.