This research explores the behavioural mechanism of firm innovation in the context of the US-China decoupling since 2018. Under suddenly increasing environmental uncertainty, while most firms are risk-aversion, firms with a social performance feedback leap (i.e., pre-shock underperforming firms outperforming others after the shock) get promising information from the leap and thus are more likely to take risks and launch innovation. The effect is stronger for firms with a promotion focus, which are more likely to identify and positively interpret the leap and take actions to sustain the advantage. We find support for the arguments using data from 330 Chinese listed firms engaged in trade with the US. Our study introduces a behavioural mechanism to understand the impact of decoupling on innovation and contributes to the behavioural theory of the firm (BTOF) with a novel concept.
Chen et al. (Wed,) studied this question.