Performance aspiration, industrial search and R&D investment among chinese firms

Abstract

Purpose This paper aims to examine the behavioral determinants of firm research and development (R&D) investment in China by looking into the interaction between performance aspiration and industrial search. Design/methodology/approach The author argues that the performance aspiration effect is strengthened in R&D-intensive industries based on the isomorphism rationale, whereas it is weakened by high industry R&D intensity owing to the differentiation rationale. Deriving from the isomorphism and differentiation rationales, the author developed a set of competitive hypotheses and empirically tested them by using a large panel data of 6,539 company-years from China for the period 2001-2003. Findings First, R&D intensity is positively related to the deviation of firm performance from aspiration. Second, industry R&D intensity negatively moderates the relationship between performance aspiration and firm R&D intensity for firms performing above aspiration. Therefore, the results provide support for the differentiation rationale. Originality/value The study contributes to the ongoing research that provides and tests the behavioral explanations for R&D and innovation. By delving into the moderating role of industry R&D intensity, the author advocate the need for contextualizing performance aspiration in industrial environments. The study informs policymakers and business leaders about the interaction between the external environment and internal decision process in R&D investment decision.