LAUSR

Firms, especially those in the knowledge-based economy, make increasing use of external knowledge in their innovation processes. To tap into external knowledge sources, the firm follows a search strategy, which is known to be affected by both endogenous and exogenous factors. This study examines the influence of potential absorptive capacity on firms’ external knowledge search strategy. We also propose and test a moderation effect of the appropriability regime on this relationship. Based on a panel dataset of 170 international firms from various industries, we find a curvilinear relationship between the level of a firm’s potential absorptive capacity and the external knowledge search breadth. We also confirm the moderating role of the appropriability regime on this relationship. Our results highlight the role of the endogenous and exogenous factors determining the firm’s use of external knowledge in the innovation process.