Role of Search Pressure and Slack on Direction of Search

Abstract

Utilizing behavioral theory, extant research argues that firms respond to performance discrepancy by resorting to more risky actions. Building on this body of knowledge, we examine the impact of considerable search pressure on the direction of search behavior of firms. We hypothesize that under considerable search pressure from higher intensity of performance discrepancy, firms would shift to more explorative search behavior. We argue that duration of performance discrepancy would weaken the relationship between intensity of performance discrepancy and exploratory search behavior. Furthermore, we propose that organizational slack positively moderates the relationship between intensity of performance discrepancy and explorative search. We operationalize the degree of explorative search behavior using content analysis of publically available annual reports. Using panel data of a multi-industry sample of 2720 firm-years observations of Indian firms and dynamic panel model, we find partial support for our hypotheses