Imitative innovation and financial distress risk: The moderating role of executive foreign experience

Abstract

This paper investigates how imitative innovation affects firms’ financial distress risk and how executive foreign experience moderates this relationship. Using the 2008–2017 patent application data for Chinese listed firms, we find robust evidence that imitative innovation increases firms’ financial distress risk and that executives’ foreign experience can mitigate this adverse impact. Additional tests reveal that firms conduct imitative innovation to gain competitive advantage, but this also tightens their financial constraints, leading to greater financial distress risk. Overall, our results highlight the dark side of imitative innovation and the value of executives’ foreign experience for firms operating in emerging markets that rely on imitative innovation.