Abstract: Firms’ innovation capabilities are the micro-foundation to support the strategy of “transformation driven by innovation” to realize. As a result, it is of great importance to leverage a firm’s innovation capabilities. Many scholars have contributed to explain how a firm’s innovation capabilities to be constructed. But the extant literature still cannot explain what factors drive a firm’s endogenous development of innovation capabilities per se.. Integrating the theory of dynamic capability and managerial cognition, the present paper explores the relationship between CEOs’ managerial cognition and firms’ innovation capabilities from the perspective of managerial cognition by using data collected from 419 domestic firms. Findings got: (1) CEOs’ managerial cognitions are key drivers to construct firms’ innovation capabilities; (2) The interaction between a CEO’s resource cognition and environment cognition affects a firm’s innovation capabilities’ construction complicatedly; (3) The effects of a CEO’ managerial cognition promotes a firm’s innovation capabilities’ development shows the characteristic of “inside-out” as resource cognition driven rather than that of “outside-in” as environment munificence driven. Finally, the theoretical contribution, managerial implication and limitation have been discussed.

Key words: firms&rsquo, innovation capabilities, managerial cognition, resource cognition, environment cognition