Effects of Exploration on Firm Performance and Survival

Abstract

Despite a number of studies on the relationship between exploration, exploitation and various performance consequences, far less attention has been paid to uncovering how exploratory innovation dissimilarly influences a firm’s short-term, long-term performance, and its survival. Prior work has mainly examined the effect on one of various performance outcomes in different time horizons, and has rarely considered both short-term and long-term performance. This study is the first to simultaneously examine the short-term and long-term performance effects of the balance between exploration exploitation, as well as its survival effects. The findings from longitudinal and survival analyses on Korean IT firms for the 1981-2011 period reveal that exploration and exploitation have differential performance effects – exploration have a positive effect on long-term performance, whereas exploitation have a positive effect on short-term performance – at any given point in time, and that maintaining an appropriate balanc...