Performance Feedback and Organizational Search Behaviors of Emerging Market Business Group Affiliates

Abstract

Purpose - The purpose of this paper is to investigate the effect of performance feedback on market vs. technology search behavior of business group affiliates in Korea.
 Design/Methodology/Approach - This study use panel data and the system GMM to analyze the relationship of performance feedback and search behavior, using data from large business group affiliates of 2001-2011.
 Findings - We show that organizational form influences the relationship between performance feedback and search behavior. Contrary to the firms’ usual response to the negative performance feedback, emerging market business group affiliates appear to expedite market search relative to technology search in an effort to rapidly recover their performance vis-à-vis peer affiliates. When the performance is above its aspiration level, the affiliates tend to reserve technology search that accompanies higher risk. We also examine how certain characteristics of business groups interact with the search behavior of its affiliates. We also find that the level of diversification of the business group negatively influences the search behaviors when the performance is below the aspiration level.
 Research Implications - The result of this research implies that the managers of affiliates pay more attention on improving their short term performances, responding more sensitively to internal peer evaluation of within the business group. This result also implies that more diversified business groups induce the more passive searches, since they increase dependency to internal information.