How does inconsistent negative performance feedback affect the R&D investments of firms? A study of publicly listed firms

David Diwei Lv, Weihong Chen, Hang Zhu and Hailin Lan

Journal of Business Research, 2019, vol. 102, issue C, 151-162

Abstract: We analyze the innovation incentives of firms in a model in which a firm's R&D investment is endogenous to performance comparisons due to performance feedback from historical and social comparisons. Performance feedback reveals relevant information to managers, improves their real decisions, and enhances their innovation efforts. This feedback effect has an asymmetric effect on R&D investing behavior: inconsistent (consistent) performance feedback decreases (increases) the R&D intensity of the firm. Such inconsistency gives rise to an endogenous limit to problemistic searches, whereby managers will refrain from initiating problemistic searches and increase R&D investment based on inconsistent negative performance feedback. Thus, inconsistent feedback is incorporated more slowly into R&D investments than consistent feedback, potentially leading to low R&D investment. Moreover, family control strengthens this asymmetry. Compared with non-family firms, the negative impact of inconsistent negative feedback on R&D investment is stronger in family firms.

Keywords: Performance feedback; Inconsistency; Aspiration; Behavioral theory of the firm; R&D; Family firm (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S014829631930298X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:102:y:2019:i:c:p:151-162

DOI: 10.1016/j.jbusres.2019.04.045

Access Statistics for this article

Journal of Business Research is currently edited by A. G. Woodside

More articles in Journal of Business Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().