ABSTRACT Performance feedback literature acknowledges that firms’ innovative behaviour in response to performance shortfalls. However, it overlooks the impact of multidimensional heterogeneity in innovative activities on the direction of search following performance shortfalls. Based on the framework of gain and loss, we propose that underperforming firms are inclined to minimise breadth search and are more likely to engage in depth search, influenced by varying perceptions of risk associated with different innovative search strategies. This hypothesis is tested using a panel dataset of 234-listed biopharmaceutical firms in China from 2008 to 2022. Our findings indicate a negative relationship between performance shortfalls and innovative search breadth, and a positive relationship between performance shortfalls and innovative search depth. Furthermore, we found that both knowledge diversity and knowledge distance negatively moderate the relationship between performance shortfalls and innovative search breadth. Conversely, knowledge distance positively moderates the relationship between performance shortfalls and innovative search depth. This study enriches the understanding of performance feedback mechanisms and their influence on innovative search strategies.