Determinants of Firms' Backward- and Forward-Looking R&D Search Behavior

Abstract

This study develops and operationalizes a behavioral forward-looking search model by incorporating prospect theory, organizational risk literature, and the logic of the behavioral theory of the firm. With recognition of the bounded rationality of decision makers and the goal-directed, rule-based nature of organizations, this model suggests that a comparison between firms' performance expectation and performance target translates the cognitive representation of the firms' future into their subsequent actions. By examining the research and development (R&D) expenditures of U.S. manufacturing firms from 1980 to 2001, this study explores how performance, aspirations, expectations, and slack affect decision making about firms' R&D search investments. The findings show that both performance feedback and performance prospect are important determinants of firms' search behavior after controlling for firm, industry, and time effects. In addition, backward- and forward-looking determinants have interactive effects on search behavior. Firms' problem-driven search activity further increases when firms feel unlikely to achieve the performance target for another year. In contrast, search intensity is reduced when firms expect to improve their performance from an underperforming situation to an outperforming situation. The findings suggest that future research on performance feedback and experiential learning should also consider the effect of forward-looking prospects on firm behavior.

Personnel- and action control in gazelle companies in Sweden

“…The research is thus in line with the earlier theory (Audia et al 2000;Bowen et al 2010) suggesting that past experience will develop future growth. In support of forwardlooking research on growth rather than backward mechanisms determining growth (Bourne 2014;Chen 2008), this study may inspire new streams on how experiences and path dependence (i.e., earlier experience) determine future growth.…”

“…Some processes are more innovative than others and may be undergoing continual change, requiring constant decisions from a manager. A manager needs to decide which routines, policies, and strategies to adopt and how to follow up new ideas and to align these with the current platforms through established management control systems (Chen 2008). Some companies may thus, through established management control systems, have the stability to pass constantly through changes successfully, whereas others may lack this.…”

“…Formal personnel and behavioral action controls build positions towards specific tasks related to the desired current and future growth (Bourne 2014;Bowen et al 2010;Chen 2008;Kihn 2008).…”

“…When the growth strategies adopted mean that the focal company experiences poor or no growth, the position is the status quo or significant growth strategies (Bandura 1997). On the contrary, in situations when companies experience growth, they are less motivated to change their future growth strategies (Kim et al 2011;Chen 2008). Positive growth breeds future growth and therefore is also more forward looking than backward looking.…”

“…In addition, this suggests separating current and future growth as one avenue to seek more forward-looking perspectives. The benefit of many longitudinal studies is their comprehensive implications for pinpointing causal effects, but those effects are often rather retrospective and backward looking instead of forward looking (Bourne 2014;Chen 2008). To this end this paper may also inspire forecasting controls.…”