Beyond compliance: standard-setting participation and radical innovation in China

Purpose Radical innovation is essential for firms to sustain competitive advantage amid rapid technological change. While prior literature largely focuses on the role of standards in facilitating incremental improvements through standard adoption, little is known about whether and how firms' active participation in standard-setting shapes radical innovation. This study addresses this gap by examining how corporate participation in standard-setting fosters radical innovation. Specifically, it highlights the mediating role of knowledge absorptive capacity in transforming external knowledge into novel outcomes, and the moderating effect of market uncertainty in shaping the strength of this relationship. Design/methodology/approach Using a sample of China A-share listed firms in telecommunications and renewable energy (2000–2023), this study applies an instrumental variable method to address endogeneity concerns. It assesses the causal relationship between corporate participation in standard-setting and radical innovation while examining the mediating and moderating factors. Findings Results show that corporate participation in standard-setting significantly enhances radical innovation, with knowledge absorptive capacity fully mediating this relationship. Firms involved in standard-setting better acquire and utilize external knowledge, fostering breakthrough innovations. However, market uncertainty negatively moderates this effect, as high volatility weakens the benefits of standard-setting on innovation. Originality/value This study challenges the traditional view that standards primarily facilitate incremental improvements and provides new empirical evidence on the role of corporate participation in standard-setting in fostering radical innovation. It contributes to the literature in three ways. First, it shifts the focus from standard adoption to active participation in standard-setting, offering a new perspective on how standards relate to innovation. Second, it identifies knowledge absorptive capacity as a key mechanism linking standard-setting participation to radical innovation. Third, it highlights the contingent role of market uncertainty in shaping this relationship. By integrating knowledge-based theory and dynamic capabilities theory, this study enhances our understanding of how firms can leverage standard-setting to drive innovation in emerging markets such as China.