Innovation under Dynamic Institutional Change: How Firms Can Capture Innovation Opportunities under Institutional Uncertainty

Abstract This study adopts a temporal lens to integrate opportunity logic with institutional theory, examining how varying and unpredictably evolving institutions across countries shape firm innovation. Focusing on nascent industries – where institutional environments are not only diverse but also characterized by irregular and rapid change over time – we theorize a U -shaped relationship between institutional uncertainty and digital product innovation. We further explore how design iteration, as a form of temporally distributed adaptive action, enables firms to navigate uncertainty and capture innovation opportunities in dynamic institutional contexts. Drawing on a sample of 4,619 firms from 50 countries in the global mobile app industry, our empirical findings support these propositions. This research advances a dynamic, time-sensitive perspective on institutions and innovation, offering key insights for emerging markets, like China, where firms operate amid rapid and unpredictable institutional transitions.