R&D investments in response to performance feedback: moderating effects of firm risk profile and business strategy

Oveis Madadian and Maud van den Broeke
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Oveis Madadian: LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique
Maud van den Broeke: LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique

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Abstract: R&D investments in response to performance feedback have been extensively studied. We show that both firm risk profile (i.e. low vs high risk) and business strategy (i.e. Prospector vs Defender), two aspects understudied in this context, have incremental moderating effects (both separate and joint) on this R&D-performance feedback relationship. Using a sample of US listed firms from 2000 to 2019, we observe that, when performance relative to aspiration level decreases (increases), without controlling for moderating effects of risk and strategy, firms tend to increase (decrease) R&D investments. However, as risk profile changes from low to high risk, responses to performance feedback tend to change from decreasing R&D or maintaining status quo to increasing R&D investments. We also find that, in response to performance deviation from aspiration level (regardless of the direction), Defenders tend to decrease R&D investments, regardless of risk profile, whereas Prospectors tend to increase R&D investments (maintain status quo) when their performance relative to aspiration level decreases (increases).

Keywords: Behavioral theory of the firm; performance feedback; R&D; risk profile; business strategy (search for similar items in EconPapers)
Date: 2023-02-07
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Citations: View citations in EconPapers (2)

Published in Applied Economics, 2023, 55 (7), pp.802-822. ⟨10.1080/00036846.2022.2094879⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04133760

DOI: 10.1080/00036846.2022.2094879

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