Abstract
In the behavioral theory of the firm literature, the mechanism of problemistic search predicts that organizational failures foster risk-taking changes. However, real-world observations that failures fail to serve as such a trigger in many firms run counter to this general view. This study investigates how firms’ learning from negative performance feedback can be misdirected from institutional concerns. I classified performance feedback from multiple products of firms into two categories: categorical feedback from exploitation and exploration. When failures are attributed to executives’ prior engagement in exploration-deviation from the institutionalized norm of doing business, executives risk more severe punishment from shareholders and board members, and thus show more sensitive reaction by significantly decreasing their subsequent investment in exploration. I examine this phenomenon based on new product development investments of film producer organizations in the United States from 2000 to 2012. My result of a Tobit panel analysis showed that explorative categorical feedback more significantly moderated the effects of firm-level feedback on firms’ investments, supporting my hypothesis
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