How do incentives motivate absorptive capacity development? The mediating role of employee learning and relational contingencies

Abstract

This study explores the antecedents of a firm's absorptive capacity by examining the role of innovation incentives. Building on expectancy theory and equity theory, we argue that innovation incentives enhance absorptive capacity through promoting employees learning; and the effectiveness of incentives is positively moderated by teamwork (i.e., horizontal relation) but negatively moderated by transformational leadership (i.e., vertical relation). To test our hypotheses, we employ a multi-respondent research design based on a sample of 102 Chinese automotive companies. The results show strong support for the hypotheses and demonstrate the positive impact of innovation incentives on a firm's absorptive capacity through the mediating role of employee learning, as well as the moderating effect of the relational context in shaping the influences of innovation incentives.