Bridging industry-finance collaboration and innovation: How strategic choices shape the path to key digital technology innovation

Key digital technologies (KDTs), such as artificial intelligence and blockchain rely on cross-sector collaboration and sustained capital investment, yet market failures persist due to path uncertainty, knowledge spillovers, and ecosystem fragmentation. Existing research on industry-finance collaboration often assumes linear transmission and pays limited attention to how firm heterogeneity conditions policy effectiveness in fostering KDTs innovation. Our study examines how industry-finance collaboration policies (IFCP), as a city-level policy bundle, is associated with firms' KDTs innovation, and how strategic emphases shape heterogeneous responsiveness. We adopt an institution-capability perspective to interpret how policy-induced changes in local financing and collaboration conditions interact with firms’ capability deployment and generate heterogeneous innovation responses. Using a difference-in-differences (DID) approach and 13,580 firm-year observations from publicly listed Chinese firms from 2014 to 2022, we estimate an intent-to-treat effect of exposure to the pilot-city policy environment. We find that IFCP exposure is associated with higher KDTs innovation. Firms with stronger differentiation orientation exhibit stronger policy effects, whereas stronger cost-leadership orientation is associated with weaker effects. Inbound open innovation strengthens the estimated policy effect, while outbound open innovation weakens it. We discuss implications for understanding heterogeneous policy effectiveness and note limitations due to unobserved firm-level take-up of specific instruments within the policy menu.