Environmental scanning and investment decision quality

Abstract

PurposePrevious studies on scanning behavior have focused mainly on decisions relating to the choice of corporate strategies, leaving strategic investment decisions largely understudied. This paper aims to bridge the gap not just by examining strategic investment decisions but also by investigating the role of information processing capacity in enhancing the relationship between the extent of scanning behavior and the quality of the investment decision.Design/methodology/approachCross‐sectional data are collected through a survey and analyzed by means of factor analysis and hierarchical regression analysis.FindingsQuality of decision is positively and significantly related to the extent of economic and competition information and the formality of method used to scan competition information. However, the extent of scanning for technology is contingent upon information processing capacity in order to affect the quality of the investment decision. Similarly, the method of scanning for economy, technology and competition information would depend on the information processing capacity to bring about a quality decision.Research limitations/implicationsUse of convenience sampling may restrict the generalizability of the findings.Practical implicationsAs more economy and competition data are scanned, this would improve the quality of decision making, but for technology scanning the data have to be processed further before they can bring about changes in decision quality. For technology‐related matters, firms should be investing in the information processing capacity to produce quality decisions.Originality/valueThis study uses the decision as its unit of analysis to avoid having to average out the effects of making good and bad decisions often associated with a decision maker.