Government affiliation and innovation in emerging market firms: The role of international diversification

Abstract Research Summary This study examines how international diversification interacts with government affiliation to shape innovation outcomes in emerging market firms. We reconceptualize government affiliation as a resource‐structuring mechanism that varies across hierarchical levels and influences the coherence of firms' dominant logics of innovation. We highlight that firms affiliated with middle‐level governments face fragmented resource environments and ambiguous innovation priorities. International diversification does not merely provide additional resources; rather, exposure to diverse institutional environments requires interpretive integration that fosters openness and organizational coordination, consolidating dominant logic coherence. Using panel data on Chinese listed firms, we find that middle‐level‐affiliated firms exhibit weaker innovation outcomes, whereas international diversification mitigates this disadvantage. Our findings clarify the links among affiliation heterogeneity, global strategy, and innovation and help reconcile prior mixed evidence. Managerial Summary Emerging market firms often maintain ties to different levels of government, shaping their access to innovation‐related resources and strategic priorities. Our findings suggest that firms affiliated with middle‐level governments face unique innovation challenges. These firms receive partial state support but lack clear direction from either state or market forces, leading to ambiguity in innovation strategies. International diversification can help address this challenge. By operating across diverse institutional environments, firms are exposed to alternative practices and performance benchmarks that encourage openness and strengthen organizational coordination. This process helps consolidate clearer innovation priorities and improves innovation outcomes. For managers of middle‐level‐affiliated firms, international expansion may therefore serve not only as a growth strategy but also as a means of strengthening innovation coherence. More broadly, the benefits of international diversification depend on firms' domestic institutional positioning with particular levels of government.