Corporate innovation failures and AI orientation: evidence from China

Despite wide recognition of the role of artificial intelligence (AI) in enhancing innovation capabilities and revitalizing traditional industries, its firm-level orientation remains a strategic choice constrained by firms’ resources and capabilities. While extensive research has examined AI-related strategies, the literature lacks a systematic understanding of the antecedents of AI orientation. Drawing on the behavioural theory of the firm, our study examines how innovation failures affect AI orientation. We empirically test panel data from Chinese A-share high-tech firms during 2010–2023 via OLS regression and reveal a positive correlation between innovation failure and AI orientation, which is positively moderated by industry growth. Mechanism testing indicates that innovation failure promotes AI orientation by driving firms’ dynamic capabilities. Heterogeneity analysis shows that innovation failure has a more significant positive effect on AI orientation when a firm has lower investor attention or possesses more redundant resources. Finally, the economic consequences of AI orientation include increases in firms’ AI software investment and knowledge restructuring. Our research thus explains how innovation failure and AI orientation are linked and provides valuable insights to inform policymaking.