Abstract
Research has established the relevance of absorptive capacity to firm performance, and a recent meta-analysis review shows that absorptive capacity has a positive impact on firm performance, mediated by innovation (Song, Gnyawali, Srivastava, & Asgari, 2018). However, existing literature has paid little attention to taking into account how moderating variables might affect this mediating relationship. Drawing on organizational learning theory, we propose that entrepreneurial orientation and transactional leadership are the boundary conditions of the indirect effect of absorptive capacity on firm performance through incremental innovative capability. Data collected from 115 firms in China shows that entrepreneurial orientation boosts the impact of absorptive capacity on incremental innovative capability which, in turn, enhances firm performance. In addition, the impact of incremental innovative capability on firm performance is contingent upon transactional leadership.