Problematic search, slack search and institutional logic in corporate R&D strategy: An empirical analysis of Taiwanese electronics firms

This study focuses on firms' search behavior with regard to corporate R&D investment. Building on Cyert and March's (1963) behavioral theory of the firm, we develop specific hypotheses about how firms adjust their R&D investment in response to performance discrepancies, and how this adjustment varies for two types of slack resources. Moreover, by utilizing institutional logic, we also hypothesized that the firms' search behaviors in response to performance feedback may differ between business-group affiliated and unaffiliated firms. Empirical evidence from panel data coving 274 Taiwanese electronics firms listed on the Taiwan Stock Exchange over the period 1999-2008 is consistent with our theoretical predictions. In particular, we find that firms will increase R&D investment when they faced discrepancies in performance, but will decrease R&D spending when close to bankruptcy. Moreover, our results show that unabsorbed and absorbed slack have different impacts, positively and negatively affecting R&D investment, respectively. In addition, we find that both business group-affiliated and unaffiliated firms will increase R&D investment in response to negative performance feedback, but only business group-affiliated firms will increase R&D activity when facing positive performance feedback. Furthermore, we also find that only business group-affiliated firms have a greater inclination to invest in R&D when there is unabsorbed slack. Our findings extend the claims of behavioral theory in newly industrialized economies, and identify the important factors that need to be considered in future studies.