When do firms invest in R&D? Two types of performance feedback and organizational search in the Korean shipbuilding industry

Abstract

This paper examines how organizations respond when different types of aspiration provide different performance feedbacks. We analyze the effects of performance feedback with respect to two different types of aspiration, historical and social, on R&D decision-making. We attempt to resolve the contradictory prior findings regarding the effects of performance feedback by employing insights from attribution theory. We predict that firms will reduce R&D investment when negative performance feedback is received in terms of historical aspiration level due to self-enhancement, but that they will expand R&D investment when negative performance feedback is based on social aspiration level due to self-deprecation. We also predict that firms will increase R&D investment when performance is lower than historical aspiration level and higher than social aspiration level, but will decrease it when performance is lower than social aspiration level and higher than historical aspiration level. We further predict that since performance failures at both aspiration levels place firms under pressure in opposite directions, their effects are likely to offset each other. The results of our empirical analysis of R&D investment by Korean shipbuilding companies supported all the hypotheses. Based on these results, we propose a number of implications for researchers and managers.