Underperformance duration and innovative search: Evidence from the high-tech manufacturing industry

Wei Yu, Maria Minniti, Robert Nason

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

Research Summary: Behavioral theory examines how the intensity of underperformance influences firms' strategic decisions; yet, it largely fails to consider the effect of underperformance duration. Drawing on behavioral theory and organizational learning, we argue that the length of time that a firm has been underperforming contributes to shaping firms' innovative search patterns. We test our theory merging COMPUSTAT and NBER patent data for 1,610 high-tech manufacturing companies between 1986 and 2006. Our results largely support our predicted curvilinear relationships. We find that innovative search magnitude and scope each first decreases and then increases with underperformance duration. In addition, we find marginal evidence that innovative search depth first increases and then decreases with underperformance duration. The statistical and practical significance of the results is also discussed. Managerial Summary: Innovation is vital for a firm's survival and competitive advantage and requires a search for knowledge. Previous research suggests that the gap between current performance and desired performance is an important trigger for firms' innovative action. We suggest that how long the firm has been underperforming also plays an important role in firm innovation. Using financial and patent data on public high technology manufacturing firms, we show that there are nonlinear relationships between the duration of a firm's underperformance and its innovative activities. We find that underperforming firms first decrease and then increase R&D spending and the use of new knowledge as underperformance prolongs. Our results imply that underperforming firms face competing short- and long-term pressures that influence the nature of its innovative activities.

Original languageEnglish (US)
JournalStrategic Management Journal
DOIs
StateAccepted/In press - Jan 1 2018

Fingerprint

High-tech
Manufacturing industries
Underperformance
Behavioral theory
Innovation
Innovative activity
Patent data
Financial data
Nonlinear relationships
Manufacturing firms
Merging
Organizational learning
High technology
Manufacturing companies
Trigger
Strategic decisions
Competitive advantage
Firm survival

Keywords

  • behavioral theory
  • innovative search
  • nonlinearity
  • time
  • underperformance duration

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management

Cite this

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abstract = "Research Summary: Behavioral theory examines how the intensity of underperformance influences firms' strategic decisions; yet, it largely fails to consider the effect of underperformance duration. Drawing on behavioral theory and organizational learning, we argue that the length of time that a firm has been underperforming contributes to shaping firms' innovative search patterns. We test our theory merging COMPUSTAT and NBER patent data for 1,610 high-tech manufacturing companies between 1986 and 2006. Our results largely support our predicted curvilinear relationships. We find that innovative search magnitude and scope each first decreases and then increases with underperformance duration. In addition, we find marginal evidence that innovative search depth first increases and then decreases with underperformance duration. The statistical and practical significance of the results is also discussed. Managerial Summary: Innovation is vital for a firm's survival and competitive advantage and requires a search for knowledge. Previous research suggests that the gap between current performance and desired performance is an important trigger for firms' innovative action. We suggest that how long the firm has been underperforming also plays an important role in firm innovation. Using financial and patent data on public high technology manufacturing firms, we show that there are nonlinear relationships between the duration of a firm's underperformance and its innovative activities. We find that underperforming firms first decrease and then increase R&D spending and the use of new knowledge as underperformance prolongs. Our results imply that underperforming firms face competing short- and long-term pressures that influence the nature of its innovative activities.",
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N2 - Research Summary: Behavioral theory examines how the intensity of underperformance influences firms' strategic decisions; yet, it largely fails to consider the effect of underperformance duration. Drawing on behavioral theory and organizational learning, we argue that the length of time that a firm has been underperforming contributes to shaping firms' innovative search patterns. We test our theory merging COMPUSTAT and NBER patent data for 1,610 high-tech manufacturing companies between 1986 and 2006. Our results largely support our predicted curvilinear relationships. We find that innovative search magnitude and scope each first decreases and then increases with underperformance duration. In addition, we find marginal evidence that innovative search depth first increases and then decreases with underperformance duration. The statistical and practical significance of the results is also discussed. Managerial Summary: Innovation is vital for a firm's survival and competitive advantage and requires a search for knowledge. Previous research suggests that the gap between current performance and desired performance is an important trigger for firms' innovative action. We suggest that how long the firm has been underperforming also plays an important role in firm innovation. Using financial and patent data on public high technology manufacturing firms, we show that there are nonlinear relationships between the duration of a firm's underperformance and its innovative activities. We find that underperforming firms first decrease and then increase R&D spending and the use of new knowledge as underperformance prolongs. Our results imply that underperforming firms face competing short- and long-term pressures that influence the nature of its innovative activities.

AB - Research Summary: Behavioral theory examines how the intensity of underperformance influences firms' strategic decisions; yet, it largely fails to consider the effect of underperformance duration. Drawing on behavioral theory and organizational learning, we argue that the length of time that a firm has been underperforming contributes to shaping firms' innovative search patterns. We test our theory merging COMPUSTAT and NBER patent data for 1,610 high-tech manufacturing companies between 1986 and 2006. Our results largely support our predicted curvilinear relationships. We find that innovative search magnitude and scope each first decreases and then increases with underperformance duration. In addition, we find marginal evidence that innovative search depth first increases and then decreases with underperformance duration. The statistical and practical significance of the results is also discussed. Managerial Summary: Innovation is vital for a firm's survival and competitive advantage and requires a search for knowledge. Previous research suggests that the gap between current performance and desired performance is an important trigger for firms' innovative action. We suggest that how long the firm has been underperforming also plays an important role in firm innovation. Using financial and patent data on public high technology manufacturing firms, we show that there are nonlinear relationships between the duration of a firm's underperformance and its innovative activities. We find that underperforming firms first decrease and then increase R&D spending and the use of new knowledge as underperformance prolongs. Our results imply that underperforming firms face competing short- and long-term pressures that influence the nature of its innovative activities.

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