Firm-level effects of staged investments in innovation: The moderating role of resource availability

Petra Andries and Paul Hünermund

Research Policy, 2020, vol. 49, issue 7

Abstract: Integrating insights on firms’ resource availability with bounded rationality and real options arguments, we propose that resource-abundant and resource-constrained firms reap different effects from a staged approach to innovation. We argue that resource availability triggers overoptimism and managerial discretion, and thereby impedes adequate resource reallocation in staged innovation projects, leading to different effects of staging at the firm level. An empirical analysis of 2,790 German firms confirms that a staged investment approach leads to a higher number of newly started and abandoned innovation projects in resource-abundant firms than in resource-constrained firms. Supplementary analyses suggest that this is indeed because resource-abundant firms demonstrate more overoptimism and managerial discretion. We discuss implications for the real options literature, as well as managerial implications for innovation investment decisions.

Keywords: Innovation; Real options; Staged investment; Resource availability; Bounded rationality (search for similar items in EconPapers)
JEL-codes: M10 O32 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:respol:v:49:y:2020:i:7:s0048733320300743

DOI: 10.1016/j.respol.2020.103994

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