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

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 nat...

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Bibliographic Details
Published in:Organization science (Providence, R.I.) R.I.), 2008-07, Vol.19 (4), p.609-622
Main Author: Chen, Wei-Ru
Format: Article
Language:English
Subjects:
Analysis
Analytical forecasting
Associations, institutions, etc
backward looking
Behavior
behavioral theory of the firm
Business innovation
Business management
Business structures
Cognitive models
Corporate strategies
Data analysis
Decision making
Enterprises
forward looking
Industrial growth
Information search behavior
Learning
Manufacturers
Organization theory
Organizational behavior
Organizational behaviour
Prospect theory
R&D
Regression analysis
Research & development
Research and development
Risk aversion
Risk management
search
Studies
U.S.A
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Summary: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.
ISSN:1047-7039
1526-5455
DOI:10.1287/orsc.1070.0320