Double-edged Effects of Innovation Culture on Firm Innovation Performance: Evidence from Management Disclosures and Employee Reviews

• Published in: IEEE transactions on engineering management Vol. 71; pp. 1 - 14
• Main Authors: Zhang, Muyu, Liu, Shan, Gao, Baojun
• Format: Journal Article
• Language: English
• Published: New York IEEE 01.01.2024; The Institute of Electrical and Electronics Engineers, Inc. (IEEE)
• Subjects: Cultural differences; Disclosure; employee review; Employees; Financial reporting; Glassdoor; Industries; Innovation culture; innovation performance; Innovations; Investment; market competition; Reviews; Task analysis; Technological innovation; Word2vec
• ISSN: 0018-9391; 1558-0040
• DOI: 10.1109/TEM.2024.3384254

While innovation culture is well-known to boost innovation performance, previous research has shown that it does not always benefit firms. Recent anecdotal evidence also reveals inconsistent correlations between innovation cultures among employees at different hierarchy levels and firm innovation performance. To reconcile these conflicts, we reinvigorate research on innovation culture by categorizing it into two forms: firm-endorsed innovation culture (endorsed by TMTs) and employee-recognized innovation culture (recognized by non-TMT employees). Drawing on a process-based view of innovation, we posit that these two forms of innovation culture may yield diverse outcomes due to distinct roles played by TMTs and non-TMT employees in innovation. In a study of 631 US-listed firms, we use a language-based approach to capture firm-endorsed innovation culture from financial reports and employee-recognized innovation culture from 2,844,356 employee reviews. Our findings reveal that firms with strong employee-recognized innovation culture apply for more and higher-quality patents, especially in fiercely competitive industries. However, while firms with high firm-endorsed innovation culture apply for more patents, their quality diminishes when employee recognition toward TMTs is low. A plausible explanation is that, driven by firm-endorsed innovation culture, TMTs not only tolerate resource investment and occasional failure but also hold high expectations for rapid and substantial innovation outputs. Under pressure, many employees may opt for conservative innovation projects to avoid prolonged periods without any output, thus increasing innovation quantity while decreasing quality. In summary, this study refines our understanding of innovation culture and provides insights into how firms can effectively cultivate and leverage it.