Alliance choices: A Behavioral Theory of Problemistic and Slack Searches under CEO Overconfidence

Abstract

How do firms configure exploration versus exploitation in alliance portfolios when facing behavioral heuristics? Based on the behavioral perspective, this study uses problemistic and slack searches as the behavioral explanation for exploration versus exploitation configurations in alliance portfolios. Simutaneously, it takes into account the moderating role of CEO overconfidence by considering the influence of decision makers' subjective interpretations on performance feedback and slack, during the decision-making process. It employed a feasible generalized least squares approach to regression to empirically test the model using data of 224 publicly traded firms in the United States (U.S.) comprising high-tech industries. The findings show that both, below-aspiration performance and absorbed slack, play positive roles in focusing attention on exploration rather than exploitation alliances. The results also show that CEO overconfidence intensifies the positive roles of below-aspiration performance and absorbed slack in the exploration alliance choice. This study contributes to extant literature by extending the behavioral theory to the choices of exploration versus exploitation in alliance portfolio configurations, and filling the limited attention on managers' subjective interpretation of behavioral drivers as boundary conditions in behavioral research.