Abstract
By connecting performance feedback theory to the social comparison literature, we investigated how diversified firms adapted research and development (R&D) spending in response to downward, lateral, and upward social comparisons during corporate performance shortfalls. We argued corporate offices that used similar and advantaged peers as peer groups responded to performance shortfalls by increasing R&D spending whereas those that benchmarked against disadvantaged peers decreased R&D. We further analyzed the impact of multiple goal interdependency across corporate and business unit levels on R&D decisions. We argued responses to feedback on higher-level corporate goal vary with feedback on lower-level goal amongst low- versus high-performing units. Empirical testing of 306 diversified firms in the information and communications technology sector from 1998 through 2006 showed our hypotheses were largely supported.
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