How do firms determine their approach to dual innovation about performance expectations? This paper analyzes the decision-making process known as "assessment-search-innovation" that businesses use in response to performance feedback. Furthermore, the research investigates the function of knowledge search in the relationship between the gap in performance expectations and dual innovation. The study sample consists of 827 A-share high-tech firms from 2010 to 2022. Analyzed data from the car and input databases yield 2975 occurrences of imbalanced panel data. Utilizing Stata software for empirical research (Data analysis methods encompass descriptive statistics, correlation analysis, baseline regression analysis, robustness test, and endogeneity test), regression analysis revealed that the fallout of performance expectations stimulates firms' search for a wide range of knowledge and hinders their search for in-depth knowledge. In addition, there is a strong and positive correlation between the extent of knowledge sought and exploratory innovation. At the same time, the intensity of knowledge sought is also significantly and positively correlated with exploitative innovation. An investigation of the mechanism shows that the disparity in performance expectations impacts exploratory innovation by encouraging companies to search for a wide range of knowledge and impacts exploitative innovation by inhibiting companies from searching for in-depth knowledge. Moreover, it has been discovered that when companies face a decrease in their performance, they prioritize exploring a wide range of knowledge rather than focusing on in-depth knowledge. This is especially true when there is a high risk of bankruptcy or financial loss, in contrast to the low risk of bankruptcy or profit status. Moreover, it has been shown that doing a cross-industry search for knowledge enhances the positive correlation between searching for a wide range of knowledge and engaging in exploratory innovation. Similarly, searching for knowledge within the same sector amplifies the positive correlation between searching for in-depth knowledge and engaging in exploitative innovation. The study uncovers the inherent mechanism via which the disparity in performance expectations impacts the process of dual innovation by influencing information search. This paper offers theoretical justification and empirical proof for the process by which companies seek external knowledge and execute dual innovation strategies.

The relationship between firm performance feedback and technology innovation has been studied extensively, but limited attention has been paid to factors that mediate this relationship. We examine how a parent firm addresses an affiliate’s performance level and its influence on the affiliate’s technology innovation. Integrating the behavioral theory of the firm and the concept of parent functions, we argue that the parent firm addresses the affiliate’s performance level in two ways: hierarchy management and resource allocation. Specifically, unlike the case of outperforming affiliates, the parent firm facilitates the technology innovation of underperforming affiliates through hierarchy management and resource allocation. Regression analyses of 2010–2020 data of listed affiliates belonging to Chinese business groups provide strong evidence supporting our conjecture. Our study sheds light on the importance of considering the parent’s influence when affiliates adopt technology innovation in light of its performance feedback.