This study examines the impact of industrial variety on firm formation in China, focusing on the moderating role of state-owned enterprises (SOEs). Using a firm-level dataset from China’s manufacturing sector (2000–2013) and a negative binomial regression model with fixed effects, we find that SOEs amplify the positive impact of related variety through coercive isomorphism while inhibiting unrelated variety through institutional rigidities that limit legitimacy in non-aligned sectors. The findings support policies that align smart specialization strategies with regional innovation system typologies, encouraging SOEs to act as legitimacy brokers in related sectors while reducing entry barriers for unrelated industries through more decentralized innovation ecosystems. [ABSTRACT FROM AUTHOR]

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