This paper explores the moderating role of absorptive capacity in the relationship between external knowledge flows and innovation performance. The authors argue that while external knowledge flows are crucial for innovation, firms must have the ability to recognize, assimilate, and utilize this knowledge effectively. Absorptive capacity, defined as the firm's ability to identify, evaluate, and exploit external knowledge, plays a key role in this process. The study uses data from 2265 Spanish firms, collected through the Community Innovation Surveys (CIS) in 2000 and 2002, to analyze the impact of absorptive capacity on innovation performance. The findings indicate that firms with higher absorptive capacity benefit more from external knowledge flows, leading to better innovation outcomes. Additionally, the authors find that the moderating effect of absorptive capacity is more pronounced in environments characterized by high turbulence and strong intellectual property rights (IPR) protection. The study contributes to the literature by providing empirical evidence on how absorptive capacity influences the impact of external knowledge flows on innovation performance, particularly in specific contexts.This paper explores the moderating role of absorptive capacity in the relationship between external knowledge flows and innovation performance. The authors argue that while external knowledge flows are crucial for innovation, firms must have the ability to recognize, assimilate, and utilize this knowledge effectively. Absorptive capacity, defined as the firm's ability to identify, evaluate, and exploit external knowledge, plays a key role in this process. The study uses data from 2265 Spanish firms, collected through the Community Innovation Surveys (CIS) in 2000 and 2002, to analyze the impact of absorptive capacity on innovation performance. The findings indicate that firms with higher absorptive capacity benefit more from external knowledge flows, leading to better innovation outcomes. Additionally, the authors find that the moderating effect of absorptive capacity is more pronounced in environments characterized by high turbulence and strong intellectual property rights (IPR) protection. The study contributes to the literature by providing empirical evidence on how absorptive capacity influences the impact of external knowledge flows on innovation performance, particularly in specific contexts.