This paper explores the influence of a firm’s absorptive capacity on the profitability of one thousand ninety-six Chinese firms. In addition to extending the findings of prior studies on the positive effects of absorptive capacity on a firm’s performance in the context of an emerging economy, empirical results support the main hypothesis of the positive mediating role of absorptive capacity in the relationship between R&D efforts and profitability. These effects, together with the attempt to investigate absorptive capacity outside the usual R&D context using a capability-based operationalization, will lead the discussion towards the role of public policies in enhancing the impact of a firm’s internal R&D efforts through sustaining the development of their "soft" absorptive capacity with complementary investments in compensation, motivation and the development of human resources.
Keywords: Research and development, absorptive capacity, performance, China
Jel Code: O320, L250