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The purpose of this paper is to discuss whether the three knowledge sources, knowledge input, knowledge spillover and knowledge absorptive capacity, really increase the innovation performance of firms in the Taiwan IC design industry, one of the most important knowledge‐intensive business services (KIBS) industries in Taiwan.

Based on the knowledge‐based theory, this study uses pooled regression analysis and tests with fixed effect model to analyze the influence of three knowledge sources on innovation performance in the KIBS sector.

The results demonstrate that: knowledge input is positively related to innovation performance; knowledge spillover effect is partial positively to innovation performance; and knowledge absorptive capacity is positively related to innovation performance.

The paper advances the concept of absorptive …