Abstract: It is very necessary for manufacturing to overcome current dilemma and complete transition through radical innovation. As government plays a key role in firms operations, this study explores the relationships among innovation ambidexterity, new product development (NPD) and government regulation that are measured at both government and firm levels. With a dataset from the World Bank, this study uses hierarchy moderated regression to validate the negative effects of regulations on innovation activities. Government regulation measured by tax burden (government level) negatively moderates the relationship between explorative innovation and NPD performance, while it positively moderates the effects of exploitative innovation. The similar findings are also examined with regulation measured by the time that firms spend to deal with governments (firm level). Thus, the findings reveal the dark sides of onerous or strict regulations. The study offers managerial suggestions for firms, and political implications for current government as well.