The impact of continuous innovation failure on knowledge advantage: from the perspectives of learning and resource

Purpose This study aims to examine how continuous innovation failure (CIF) shapes a firm’s knowledge advantage (KA) by distinguishing between internally driven, continuous subjective innovation failure (CSIF), reflecting repeated managerial reassessments and externally imposed, continuous objective innovation failure (COIF), arising from formal rejection by external institutions. The paper investigates how these mechanisms influence firms’ KA, reflecting their relative standing in strategic knowledge accumulation and industry competitive positioning. Design/methodology/approach Using a panel of 1,547 Chinese knowledge-intensive listed firms (KIFs) from 2007 to 2020, CSIF and COIF are operationalized through patent withdrawals and rejections, respectively. This paper tests their effects on KA using industry and year fixed effects and examine the moderating effects of financing constraints and managerial ability. Findings Empirical results show that CSIF exhibits an inverted U-shaped relationship with KA: intermediate levels of internal failure promote learning and knowledge recombination within the firm, whereas excessive failure reduces KA due to depletion of financial and managerial resources. In contrast, COIF exerts a persistent negative effect, reflecting structural misalignment and constrained learning. Financing constraints amplify both effects, whereas managerial ability mitigates the adverse impact of COIF. Originality/value By framing CIF as a dynamic knowledge evaluation process, this study advances understanding of how knowledge is created, filtered and accumulated within organizations. Integrating organizational learning and resource constraints perspectives, this study clarifies how internal and external mechanisms differentially shape the long-term evolution of KA. The findings also provide actionable guidance for managers in KIFs to leverage internal learning while managing risks arising from external failure.