Absorptive capacity and business performance

Purpose: The purpose of this paper is to examine the multiple paths of absorptive capacity’s (AC) effect on business performance (BP): direct effect and indirect effects through innovation and mass customization (MC). Design/methodology/approach: The authors examined the role of innovation and MC capability on the relationship between AC and BP. Data from 278 Chinese firms in four manufacturing industries collected by questionnaire are used to empirically examine the proposed model by Structural equation modeling. Findings: The results show that AC can directly enhance BP, and indirectly through innovation and MC capability. The study also finds that MC capability has a stronger mediating effect than innovation. Originality/value: Prior studies have not yet built linkages between AC and BP with both innovation and MC’s effects. This study provides empirical evidence of the effects of AC on BP and three paths are discussed including AC’s direct effect and indirect effects through innovation and MC to firm’s BP. This study provides a new direction for executives to better understand the movement of knowledge along supply chain and in intra-organizational environment, and of the importance of innovation and MC capability since they are essential carriers for BP enhancement.