Institutional Quality and Innovation Performance: The Mediating Role of Open Innovation in an Emerging Economy

This study aims to investigate how institutional quality influences firms’ innovation performance, both directly and indirectly, through open innovation. Addressing a gap in the literature, it proposes a novel theoretical framework that integrates transaction cost theory and resource dependence theory to explain how firms adapt their innovation strategies in varying institutional environments. Using survey data from 306 firms in Thanh Hoa province, Vietnam, and employing Partial Least Squares Structural Equation Modelling (PLS-SEM), this study finds some interesting results. First, high institutional quality has a direct positive impact on innovation performance. Second, strong institutional quality promotes open innovation by facilitating collaboration with research organisations, leveraging external knowledge, and minimising transaction costs and risks associated with information asymmetry. However, in weak institutional contexts, firms can still adopt open innovation as an adaptive strategy to seek resources and reduce uncertainties. This finding is particularly evident in the case of open innovation in the market channel, where firms can access information and strategies to adapt to institutional limitations through partnerships with market-related actors such as customers, suppliers, competitors, consultants, and research laboratories.